1 Department of Economics, Copenhagen Business School2 Warwick Business School. University of Warwick3 Georgia State University
A large literature suggests that many individuals do not apply Bayes’ Rule when making decisions that depend on them correctly pooling prior information and sample data. We replicate and extend a classic experimental study of Bayesian updating from psychology, employing the methods of experimental economics, with careful controls for the confounding effects of risk aversion. Our results show that risk aversion significantly alters inferences on deviations from Bayes’ Rule.
Journal of Risk and Uncertainty, 2015, Vol 50, Issue 1, p. 35-54