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STICERD Economic Theory Seminars

An Axiomatic Approach to the Law of Small Numbers

Jawwad Noor (Boston University), joint with Fernando Payro

Thursday 09 March 2023 15:30 - 17:00

Many of our seminars and public events this year will continue as in person or as hybrid (online and in person) events. Please check our website listings and Twitter feed @STICERD_LSE for updates.

Unless otherwise specified, in-person seminars are open to the public.

Those unable to join the seminars in-person are welcome to participate via zoom if the event is hybrid.

About this event

We show that the evidence supporting the Law of Small Numbers (Tversky and Kahneman (1974)) can be reduced to either of two basic properties of beliefs: Streak Aversion and Mean Reversion. We formalize these properties in the context of beliefs over the outcomes of coin-tosses, and in each case represent the agent by a belief that the bias of the coin is path-dependent in a particular way. In the setting of Bayesian inference, we show that Mean Reversion ensures that the agent at least admits the true parameter as possible in the limit, if not learn with certainty that it is true, while Streak Aversion permits becoming certain about a wrong parameter (as in Rabin (2002)). In an evolutionary setting, we show that Mean Reversion agents are never pushed out of the evolutionary race by “standard” agents who correctly understand randomness, while Streak Averse agents might.

Economic Theory Seminars are held on Thursdays in term time at 15:30-17:00, both ONLINE and IN PERSON in SAL 3.05.

Seminar organisers: Dr Andrew Ellis and Dr Christopher Sandmann.

For further information please contact Sadia Ali:

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