Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/248291 
Year of Publication: 
2020
Series/Report no.: 
CeDEx Discussion Paper Series No. 2020-19
Publisher: 
The University of Nottingham, Centre for Decision Research and Experimental Economics (CeDEx), Nottingham
Abstract: 
The Description-Experience gap (DE gap) is widely thought of as a tendency for people to act as if overweighting rare events when information about those events is derived from descriptions but as if underweighting rare events when they experience them through a sampling process. While there is now clear evidence that some form of DE gap exists, its causes, exact nature and implications for economic theory remain unclear, for reasons we explain. We present a new experiment which examines in a unified design four distinct causal mechanisms that might drive the DE gap, attributing it respectively to information differences (sampling bias), to a feature of preferences (ambiguity sensitivity) or to aspects of cognition (likelihood representation and memory). Using a model-free approach, we elicit a DE gap similar in direction and size to the literature's average and find that, when each factor is considered in isolation, sampling bias stemming from under-represented rare events is the only significant driver of the gap. Yet, model-mediated analysis reveals the possibility of a smaller DE gap, existing even without information differences. Moreover, this form of analysis of our data indicates that, even when information about them is obtained by sampling, rare events are generally overweighted.
Subjects: 
Decisions from Description
Decisions from Experience
Risk Preferences
Cumulative ProspectTheory
Ambiguity
JEL: 
D81
C91
D91
Document Type: 
Working Paper

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