Updating Probabilities

  • Reference: DARDEN-QA-0860-E

  • Number of pages: 9

  • Publication Date: Apr 25, 2018

  • Fecha de edición: Apr 7, 2022

  • Source: Darden University of Virginia (USA)

  • Type of Document: Technical Note

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Description

Individuals' judgement of probabilities—the likelihood of different events to occur, or the attribution of likely causes to what has occurred—is plagued by numerous biases and errors. This note focuses on Bayesian updating and the base rate neglect, and also provides a brief overview of other biases, including overconfidence, reversion to the mean, the law of small numbers, the conjunction fallacy, confirming evidence bias, and hindsight bias. Numerous examples illustrate the implications of the biases for managerial decisions.

Keywords

judgement of probabilities and likelihoods