Skip to main content
SpringerLink
Log in

Subjective beliefs and confidence when facts are forgotten

  • Published:
Journal of Risk and Uncertainty Aims and scope Submit manuscript

Abstract

Forgetting can be a salient source of uncertainty for subjective beliefs, confidence, and ambiguity attitudes. To investigate this, we run several experiments where people bet on propositions (facts) that they cannot recall with certainty. We use betting preferences to infer subjects’ revealed beliefs and their revealed confidence in these beliefs. Forgetting is induced via interference tasks and time delays (up to one year). We observe a natural memory decay pattern where beliefs become less accurate and confidence is reduced as well. Moreover, we find a form of comparative ignorance where subjects are more ambiguity averse when they cannot recall the truth rather than never having learnt it. In a different vein, we identify an overconfidence pattern: on average, subjects overpay for bets on propositions that they believe in, but underpay for the opposite bets. We formulate a two-signal behavioral model of forgetting that generates all of these patterns. It suggests new testable hypotheses that are confirmed by our data.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3

Similar content being viewed by others

Notes

  1. These numbers are reported at http://www.innocenceproject.org/dna-exonerations-in-the-united-states/ for the time period of 1989–2018.

  2. In every one of the DNA exoneration cases involving eyewitness misidentification examined by Garrett (2011), witnesses who mistakenly identified innocent defendants did so with high confidence in a court of law.

  3. For example, agents behave as if they forget fees on credit card accounts (Agarwal et al. 2013), the operating costs of mutual funds (Barber et al. 2005), whether or not sales tax is included in stated prices (Chetty et al. 2009) etc. Note that binary bets in our experiments are analogous to Arrow securities used in the Arrow-Debreu equilibria.

  4. A coarse BDM procedure such as this has an advantage over a fine procedure in that it is easier for subjects to understand. The disadvantage is that it has less statistical power with regard to detecting small differences in valuations.

  5. The comparison between L and PF is within-subject, whereas comparing CF with L or PF is within-subject with attrition, and comparing CF with other treatments is between-subjects. While each subject has repeated measures, for statistical tests, unless otherwise stated, each subject contributes one observation consisting of his/her average/proportion across proposition pairs (A,¬A). We report p-values for the Wilcoxon Sign-Rank test unless otherwise stated.

  6. Indeterminate beliefs in stage L are rare and harder to explain exclusively by complete forgetting.

References

  • Agarwal, S., Driscoll, J.C., Gabaix, X., Laibson, D. (2013). Learning in the credit card market. Mimeo, SSRN: http://ssrn.com/abstract=109162.

  • Baliga, S., & Ely, J. (2011). Mnemonomics: The sunk cost fallacy as a memory kludge. American Economic Journal: Microeconomics, 3, 35–67.

    Google Scholar 

  • Barber, B., Odean, T., Zheng, L. (2005). Out of sight, out of mind: The effects of expenses on mutual fund flows. The Journal of Business, 78, 2095–2120.

    Article  Google Scholar 

  • Battigalli, P. (1997). Dynamic consistency and imperfect recall. Games and Economic Behavior, 20(1), 31–50.

    Article  Google Scholar 

  • Blavatskyy, P. (2009). Betting on own knowledge: Experimental test of overconfidence. Journal of Risk and Uncertainty, 38, 39–49.

    Article  Google Scholar 

  • Brewer, N., & Burke, A. (2002). Effects of testimonial inconsistencies. Law and Human Behavior, 30, 31–50.

    Article  Google Scholar 

  • Brown, G., Neath, I., Chater, N. (2007). A temporal ratio model of memory. Psychological Review, 114(3), 539–576.

    Article  Google Scholar 

  • Camerer, C., & Lovallo, D. (1999). Overconfidence and excess entry: An experimental approach. American Economic Review, 89(1), 306–318.

    Article  Google Scholar 

  • Chetty, R., Looney, A., Kroft, K. (2009). Salience and taxation: Theory and evidence. American Economic Review, 99, 1145–1177.

    Article  Google Scholar 

  • Costello, F., & Watts, P. (2014). Surprisingly rational: Probability theory plus noise explains biases in judgment. Psychological Review, 121, 463–480.

    Article  Google Scholar 

  • de Finetti, B. (1937). La prévision: ses lois logiques, ses sources subjectives. Annales de l’Institute Henri Poincare, 7, 1–68. Translated and reprinted in Kyburg and Smokler, 1964.

    Google Scholar 

  • Erev, I., Wallsten, T., Budescu, D. (1994). Simultaneous over- and underconfidence: The role of error in judgment processes. Psychological Review, 101, 519–527.

    Article  Google Scholar 

  • Ericson, K. (2011). Forgetting we forget: Overconfidence and memory. Journal of the European Economic Association, 9(1), 43–60.

    Article  Google Scholar 

  • Fischbacher, U. (2007). Z-tree: Zurich toolbox for ready-made economic experiments. Experimental Economics, 10(2), 171–178.

    Article  Google Scholar 

  • Fischhoff, B., Slovic, P., Lichtenstein, S. (1977). Knowing with certainty: The appropriateness of extreme confidence. Journal of Experimental Psychology: Human Perception and Performance, 3(4), 552–564.

    Google Scholar 

  • Fox, C., & Tversky, A. (1995). Ambiguity aversion and comparative ignorance. Quaterly Journal of Economics, 110, 585–603.

    Article  Google Scholar 

  • Froehle, C., & White, D. (2014). Interruption and forgetting in knowledge-intensive service environments. Production and Operations Management, 23(4), 704–722.

    Article  Google Scholar 

  • Garrett, B. (2011). Convicting the Innocent. Cambridge: Harvard University Press.

    Book  Google Scholar 

  • Heath, C., & Tversky, A. (1991). Preference and belief: Ambiguity and competence in choice under uncertainty. Journal of Risk and Uncertainty, 4(1), 5–28.

    Article  Google Scholar 

  • Hirshleifer, D., & Welch, I. (2002). An economic approach to the psychology of change: Amnesia, inertia, and impulsiveness. Journal of Economic Management Strategy, 11(3), 379–421.

    Article  Google Scholar 

  • Hoelzl, E., & Rustichini, A. (2005). Overconfident: Do you put your money on it? The Economic Journal, 115(503), 305–318.

    Article  Google Scholar 

  • Keren, G. (1991). Calibration and probability judgements: Conceptual and methodological issues. Acta Psychologica, 77, 217–273.

    Article  Google Scholar 

  • Kirchler, E., & Maciejovsky, B. (2002). Simultaneous over- and underconfidence: Evidence from experimental asset markets. Journal of Risk and Uncertainty, 25, 65–85.

    Article  Google Scholar 

  • Lichtenstein, S., & Fischhoff, B. (1977). Do those who know more also know more about how much they know? Organizational Behavior and Human Performance, 20(2), 159–183.

    Article  Google Scholar 

  • Lindsay, R., Wells, G., Rumpel, C. (1981). Can people detect eyewitnesses identification accuracy within and across situations? Journal of Applied Psychology, 66, 79–89.

    Article  Google Scholar 

  • McKenna, S., & Glendon, I. (1985). Occupational first aid training: Decay in cardiopulmonary resuscitation (cpr) skills. Journal of Occupational and Organizational Psychology, 58(2), 109–117.

    Article  Google Scholar 

  • Moore, D., & Healy, P. (2008). The trouble with overconfidence. Psychological Review, 115(2), 502–517.

    Article  Google Scholar 

  • Mullainathan, S. (2002). A memory-based model of bounded rationality. Quarterly Journal of Economics, 117(3), 735–774.

    Article  Google Scholar 

  • Piccione, M., & Rubinstein, A. (1997a). The absent-minded drivers paradox: Synthesis and responses. Games and Economic Behavior, 20(1), 121–130.

    Article  Google Scholar 

  • Piccione, M., & Rubinstein, A. (1997b). On the interpretation of decision problems with imperfect recall. Games and Economic Behavior, 20(1), 3–24.

    Article  Google Scholar 

  • Roediger, H., Wixted, J., Desoto, K.A. (2012). The curious complexity between confidence and accuracy in reports from memory. In Nadel, L. , & Sinnott-Armstrong, W. (Eds.) Memory and law. New York: Oxford University Press.

  • Rowan, C. (2015). Assessing memory decay rate: What factors are the best predictors of decrements in training proficiency in a threat vehicle identification task. In Proceedings of the Human Factors and Ergonomics Society 59th Annual Meeting.

  • Rubin, D., & Wenzel, A. (1996). One hundred years of forgetting: A quantitative description of retention. Psychological Review, 103(4), 734–760.

    Article  Google Scholar 

  • Savage, L.J. (1972). The foundations of statistics, 2nd edn. New York: Dover Publications Inc.

    Google Scholar 

  • Shaw, J.S., & McClure, K.A. (1996). Repeated postevent questioning can lead to elevated levels of eyewitness confidence. Law and Human Behavior, 20, 629–653.

    Article  Google Scholar 

  • Trautmann, S., Vieider, F., Wakker, P. (2008). Causes of ambiguity aversion: Known versus unknown preferences. Journal of Risk and Uncertainty, 36, 225–243.

    Article  Google Scholar 

  • Voorhoeve, A., Binmore, K., Stewart, L. (2012). How much ambiguity aversion? Finding indifferences between Ellsberg’s risky and ambiguous bets. Journal of Risk and Uncertainty, 45(3), 215–238.

    Article  Google Scholar 

  • Wilson, A. (2003). Bounded memory and biases in information processing. Econometrica, 82(6), 2257–2294.

    Article  Google Scholar 

  • Wixted, J.T., & Wells, G. (2017). The relationship between eyewitness confidence and identification accuracy: A new synthesis. Psychological Science in the Public Interest, 18, 10–65.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Economics, University of California, Irvine (UCI), Irvine, CA, USA

    Igor Kopylov

  2. Fundamentos del Análisis Económico (FAE), Universidad de Alicante, Alicante, Spain

    Joshua Miller

Authors
  1. Igor Kopylov
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Joshua Miller
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Igor Kopylov.

Additional information

Publisher’s Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

The authors are grateful to Michele Peruzzi for excellent z-Tree programming and Iris Fuli for maintaining the code and assisting during the experimental sessions. We thank Michael McBride, Gary Charness, W. Kip Viscusi, Marc Machina, Larry Epstein, Massimo Marinacci, John Duffy, Stergios Skaperdas and an anonymous referee for their comments and discussions.

Electronic supplementary material

Below is the link to the electronic supplementary material.

(PDF 94.9 KB)

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Kopylov, I., Miller, J. Subjective beliefs and confidence when facts are forgotten. J Risk Uncertain 57, 281–299 (2018). https://doi.org/10.1007/s11166-018-9295-1

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11166-018-9295-1

Keywords

JEL Classifications

Search

Navigation