Inference from Streaks in Random Outcomes: Experimental Evidence on Beliefs in Regime Shifting and the Law of Small Numbers

@article{Asparouhova2009InferenceFS,
  title={Inference from Streaks in Random Outcomes: Experimental Evidence on Beliefs in Regime Shifting and the Law of Small Numbers},
  author={Elena Asparouhova and M. Hertzel and Michael Lemmon},
  journal={Manag. Sci.},
  year={2009},
  volume={55},
  pages={1766-1782}
}
Using data generated from laboratory experiments, we test and compare the empirical accuracy of two models that focus on judgment errors associated with processing information from random sequences. We test for regime-shifting beliefs of the type theorized in Barberis et al. (Barberis, N., A. Shleifer, R. Vishny. 1998. A model of investor sentiment. J. Financial Econom.49(3) 307--343) and for beliefs in the “law of small numbers” as modeled in Rabin (Rabin, M. 2002. Inference by believers in… Expand
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