Surprisingly Rational: Evidence that people follow probability theory when judging probabilities, and that biases in judgment are due to noise

The systematic biases seen in people's probability judgments are typically taken as evidence that people do not reason about probability using the rules of probability theory, but instead use heuristics which sometimes yield reasonable judgments and sometimes severe and systematic errors. This `heuristics and biases' view has had a major impact in economics, law, medicine, and other fields; indeed, the idea that people cannot reason with probabilities has become a widespread truism. We present a simple alternative to this view, where people reason about probability according to probability theory but are subject to random variation or noise in the recall of items from memory. We show that this `noisy recall' leads to systematic deviations in probability estimates, and that these deviations explain four reliable biases in human probabilistic reasoning: conservatism, subadditivity, conjunction fallacies, and disjunction fallacies. Analysing experimental data on probability estimation we find that when deviation due to noisy recall is cancelled, people's probability judgments are strikingly close to those required by probability theory. This shows that people's probability judgments embody the rules of probability theory, and that biases in those estimates are due to the effects of random noise in recall.