Abstract
The diversification bias in repeated lotteries is the finding that a majority of participants fail to select the option offering the highest probability. This phenomenon is systematic and immune to classical manipulations (e.g. monetary rewards). We apply dual process theories and argue that the diversification bias is a consequence of System 1 (automatic, intuitive, associative) triggering a matching response, which fails to be corrected by System 2 (intentional, analytic, rational). Empirically, supporting the corrective functions of System 2 through appropriate contextual cues (describing the task as a statistical test rather than as a lottery) led to a decrease of diversification.
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Notes
Even without replacement p(green) is maximal, since there are 11 green cards more than cards of any other color and only five draws. Although strict independence is not applicable to our task (which is without replacement), we will use this notion in its loose sense, of quasi-independence.
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Kogler, C., Kühberger, A. Dual process theories: A key for understanding the diversification bias?. J Risk Uncertainty 34, 145–154 (2007). https://doi.org/10.1007/s11166-007-9008-7
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DOI: https://doi.org/10.1007/s11166-007-9008-7