Proceedings of the Annual Meeting of the Cognitive Science Society

Economic choices depend on our predictions of the future.Yet, at times predictions are not based on all relevantinformation, but instead on the single most likelypossibility, which is treated as though certainly the case—that is, digitally. Two sets of studies test whether thisdigitization bias would occur in higher-stakes economiccontexts. When making predictions about the future assetprices, participants ignored conditional probabilityinformation given relatively unlikely events and reliedentirely on conditional probabilities given the more likelyevents. This effect was found for both financial aggregatesand individual stocks, for binary predictions about thedirection and continuous predictions about expected values,and even when the “unlikely” event explicitly had aprobability as high as 30%; further, it was not moderatedby investing experience. Implications for behavioralfinance are discussed.