Inference by Believers in the Law of Small Numbers

  title={Inference by Believers in the Law of Small Numbers},
  author={Matthew Rabin},
Many people believe in the Law of Small Numbers, exaggerating the degree to which a small sample resembles the population from which it is drawn. To model this, I assume that a person exaggerates the likelihood that a short sequence of i.i.d. signals resembles the long-run rate at which those signals are generated. Such a person believes in the gambler's fallacy , thinking early draws of one signal increase the odds of next drawing other signals. When uncertain about the rate, the person over… 

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