Memory and Probability

Abstract

In many economic decisions people estimate probabilities, such as the likelihood that a risk materializes or that a job applicant will be a productive employee, by retrieving experiences from memory. We model this process based on two established regularities of selective recall: similarity and interference. We show that the similarity structure of a hypothesis and the way it is described (not just its objective probability) shape the recall of experiences and thus probability assessments. The model accounts for and reconciles a variety of empirical findings, such as overestimation of unlikely events when these are cued versus neglect of noncued ones, the availability heuristic, the representativeness heuristic, conjunction and disjunction fallacies, as well as over- versus underreaction to information in different situations. The model yields several new predictions, for which we find strong experimental support.

Estimating Percentages and Free Recall of Categorized Lists in Education Related Tasks

“…Bordalo et al (2022, see also Bordalo et al, 2020) used theory and experimental findings from decades of cognitive psychology research (e.g., Kahneman & Miller, 1986;Tversky, 1977) to make predictions of how people estimate percentages and memory retrieval in a behavioral economics context. Bordalo et al's (2022) key theories and findings will be reviewed and a description of how these are relevant in education settings will be described, before discussing the planned studies.…”

“…Because the proposed studies follow from Bordalo et al (2022), the focus in this section is on their descriptions, though they developed their hypotheses/prediction based on much research from others. Suppose that you are presented with a list of twenty foods, and are ask what proportion of the list were vegetables.…”

“…), and memory/cognitive processes that take place between when you initially process the items and when you make your estimation. Bordalo et al (2022) focus on the similarities among all the items presented and the cue used to elicit the estimation.…”

“…Two studies are proposed to examine how the similarity of non-target items and the proportion of target versus non-target items affect estimates of frequency and memory recall. These studies, which are conducted within an educational context, build on research by Bordalo et al (2022).…”

Influence of Repetition through Limited Recall

“…Our model draws on the literature of cued recall which suggests that, upon the reception of a cue, previously received messages are recalled proportionally to similarity with the cue (Kahana 2012;Bordalo, Gennaioli, and Shleifer 2017;Bordalo et al 2021). This implies that (1) repetition leads to a higher probability of recall, since there are more messages and therefore more chances to recall the sender of the message, and (2) other messages (e.g., closer in time) create interference: because of their similarity with the cue (closeness in time), they are more likely to be recalled and therefore reduce the probability of recalling any given sender (Bordalo et al 2021). Based on these two ideas, we model the probability that a source i is recalled at time t as:…”