Paper #1186

Title:

What comes to mind

Authors:

Nicola Gennaioli and Andrei Shleifer

Date:

February 2009 (Revised: November 2009)

Abstract:

We present a model of intuitive inference, called “local thinking,” in which an agent combines data received from the external world with information retrieved from memory to evaluate a hypothesis. In this model, selected and limited recall of information follows a version of the respresentativeness heuristic. The model can account for some of the evidence on judgment biases, including conjunction and disjunction fallacies, but also for several anomalies related to demand for insurance.

Keywords:

Local thinking, representativeness, stereotypes, insurance.

Area of Research:

Macroeconomics and International Economics

Published in:

Quarterly Journal of Economics, 125 (4), 1399-1433, 2010

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