Biased Probability Judgment: Representative Evidence for Pervasiveness and Economic Outcomes

Many economic decisions involve a substantial amount of uncertainty, and therefore crucially depend on how individuals process probabilistic information. In this paper, we investigate the capability for probability judgment in a representative sample of the German population. Our results show that almost a third of the respondents exhibits systematically biased perceptions of probability. The findings also indicate that the observed biases are related to observed outcomes, which indicates the policy relevance of our findings