Probability Matching

Abstract

Abstract Chapter 5 describes an experiment in which human subjects are asked to play a computer game with real monetary payoffs for correctly guessing the outcome of a binary lottery. Most subjects’ guesses conform to an irrational behaviour known as probability matching, in which the frequency of their guesses matches the underlying probability of the binary lottery. In addition to probability matching, we find different tendencies towards randomization under different payoff schemes, as predicted by Chapter 2’s evolutionary model of behaviour, and even after controlling for a wide range of demographic and socio-economic variables. We also find several individual differences in the tendency to maximize or randomize, correlated with wealth and other socio-economic factors. Surprisingly, subjects who have taken probability and statistics classes, and those who self-reported finding a pattern in the game, are more likely to act irrationally, underscoring the importance of environment as a driver of behavioural anomalies.