Thinking About Probability

Reasoning about probabilities is a fundamental part of decision-making. However, it is the area where people seem to deviate the most from normative expectations. In this chapter, we describe Bayes’ theorem, which prescribes a method of making inferences using probabilities, and we see that people systematically fail to meet the Bayesian benchmark. However, there is good evidence that people are better when asked to reason using whole numbers rather than probabilities. One explanation for this is that we have evolved methods to reason using whole numbers, but we do not naturally understand probabilities. An alternative explanation is that we are better with whole numbers because mental arithmetic is just easier with whole numbers. The chapter concludes by exploring several choice anomalies that are diminished when people are asked to reason using whole numbers.