Probabilistic reasoning in economic decisions - belief formation, inference judgements, and retirement

The main goal of this dissertation thesis is to deepen the understanding of how individuals form beliefs in economic decisions. Each chapter of the dissertation consists of an experimental study in which the drivers of the belief formation process as well as the mechanisms that underly perception and judgement are examined. The first study evaluates how biased belief formation affects investors’ risk-taking across macroeconomic cycles. The second study investigates whether individuals correctly follow a counting rule, implied by Bayes’ Theorem, when forming their expectations. The third study examines whether individuals incorporate non-diagnostic evidence into their beliefs and how preferences affect the belief updating process. Finally, the fourth study investigates consumers’ preferences for various wealth decumulation options, which transfer wealth into a stream of income to fund consumption needs during retirement