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ABSTRACTLearning the probabilities of multiple events from the environment is an important core competency of any organism. In our within‐participant experiment, participants experienced samples from two distributions, or prospects, each comprised of two to four events, and were required to provide simultaneous, rather than sequential, judgment of the likelihood of the complete set of observed events. Empirical calibration curves that map experienced probabilities to subjective probabilities reveal that the degree of underextremity (overestimation of low likelihood events and underestimation of high likelihood events) is strongly conditional on the number of judged events. We uncover two regularities conditional on the number of events that modify (a) the crossover points of the calibration curves with the identity line and (b) the gradient or sensitivity of probability judgments. We present a process model of elicited (subjective) probabilities that captures these empirical regularities. Experienced events recalled from memory may be erroneously attributed to the wrong events based on the similarity of event outcomes. We conclude that the observed miscalibration of probability judgments can be attributed to the noisy retrieval component of a rational process‐based decision model. We discuss the implications of our model for the conflicting empirical findings of overweighting and underweighting in the decisions from experience literature. Finally, we show that reliance on small samples can be an ecologically rational strategy for a bounded rational decision‐maker (subject to noisy recall), as aggregated subjective probabilities are closer to the ecological probabilities than the experienced (or sampled) probabilities are.

AbstractOver the past decades psychological theories have made significant headway into economics, culminating in the 2002 (partially) and 2017 Nobel prizes awarded for work in the field of Behavioral Economics. Many of the insights imported from psychology into economics share a common trait: the presumption that decision makers use shortcuts that lead to deviations from rational behaviour (the Heuristics-and-Biases program). Many economists seem unaware that this viewpoint has long been contested in cognitive psychology. Proponents of an alternative program (the Ecological-Rationality program) argue that heuristics need not be irrational, particularly when judged relative to characteristics of the environment. We sketch out the historical context of the antagonism between these two research programs and then review more recent work in the Ecological-Rationality tradition. While the heuristics-and-biases program is now well-established in (mainstream neo-classical) economics via Behavioral Economics, we show there is considerable scope for the Ecological-Rationality program to interact with economics. In fact, we argue that there are many existing, yet overlooked, bridges between the two, based on independently derived research in economics that can be construed as being aligned with the tradition of the Ecological-Rationality program. We close the paper with a discussion of the open challenges and difficulties of integrating the Ecological Rationality program with economics.