Mislearning from censored data: The gambler's fallacy and other correlational mistakes in optimal‐stopping problems

  title={Mislearning from censored data: The gambler's fallacy and other correlational mistakes in optimal‐stopping problems},
  author={Kevin He},
  journal={Theoretical Economics},
  • Kevin He
  • Published 21 March 2018
  • Economics
  • Theoretical Economics
I study endogenous learning dynamics for people who misperceive intertemporal correlations in random sequences. Biased agents face an optimal‐stopping problem. They are uncertain about the underlying distribution and learn its parameters from predecessors. Agents stop when early draws are “good enough,” so predecessors' experiences contain negative streaks but not positive streaks. When agents wrongly expect systematic reversals (the “gambler's fallacy”), they understate the likelihood of… 
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