NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Matthew Rabin

Department of Economics
Littauer Center M-8
Harvard University
Cambridge, MA 02138
Tel: 510/643-8622

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org

NBER Working Papers and Publications

October 2017Biased Beliefs About Random Samples: Evidence from Two Integrated Experiments
with Daniel J. Benjamin, Don A. Moore: w23927
This paper describes results of a pair of incentivized experiments on biases in judgments about random samples. Consistent with the Law of Small Numbers (LSN), participants exaggerated the likelihood that short sequences and random subsets of coin flips would be balanced between heads and tails. Consistent with the Non-Belief in the Law of Large Numbers (NBLLN), participants underestimated the likelihood that large samples would be close to 50% heads. However, we identify some shortcomings of existing models of LSN, and we find that NBLLN may not be as stable as previous studies suggest. We also find evidence for exact representativeness (ER), whereby people tend to exaggerate the likelihood that samples will (nearly) exactly mirror the underlying odds, as an additional bias beyond LSN. Ou...
May 2015Financial Markets where Traders Neglect the Informational Content of Prices
with Erik Eyster, Dimitri Vayanos: w21224
We present a model of a financial market where some traders are "cursed" when choosing how much to invest in a risky asset, failing to fully take into account what prices convey about others' private information. Cursed traders put more weight on their private signals than rational traders. But because they neglect that the price encodes other traders' information, prices depend less on private signals and more on public signals than rational-expectation-equilibrium (REE) prices. Markets comprised entirely of cursed traders generate more trade than those comprised entirely of rationals; mixed markets can generate even more trade, as rationals employ momentum-trading strategies to exploit cursed traders. We contrast our results to other models of departures from REE and show that per-trader...
January 2001Risky Behavior among Youths: Some Issues from Behavioral Economics
with Ted O'Donoghue
in Risky Behavior among Youths: An Economic Analysis, Jonathan Gruber, editor
 
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