Ro'i Zultan: Base-rate neglect: two psychological mechanisms (MUES seminar)
15 Oct
2:00 PM
Base-rate neglect—the failure of posterior beliefs to fully incorporate prior probabilities—is one of the most robust deviations from Bayesian updating. We argue that the literature has largely conflated two distinct psychological mechanisms that can generate this pattern. The first is the fallacy of the uniform prior (FUP), whereby individuals update as if the prior were uniform. The second is the fallacy of the transposed conditional (FTC), whereby individuals treat the precision of a signal as if it were the posterior probability. While both mechanisms imply base-rate neglect, they map information into beliefs in fundamentally different ways. We show that they are observationally equivalent under symmetric information structures, which dominate existing designs, but diverge under asymmetry. We develop a framework that nests both mechanisms and an experimental design that identifies them empirically.
Ro'i Zultan is a professor at the Department of Economics at Ben-Gurion University of the Negev and the director of the Negev Experimental Economics Laboratory. He is an experimental economist with a background in cognitive and experimental psychology. His research focuses on understanding how group dynamics influence cognition and behavior, as well as on broader questions of cooperation, coordination, and decision-making in teams. He is also interested in game theory, market efficiency, ethics, and the methodological foundations of experimental research.
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