Sonnemann, U., Camerer, C.F., Fox, C.R., and Langer, T. (2013) *
A fundamental debate in social sciences concerns how individual judgments and choices, resulting from psychological mechanisms, are manifested in collective economic behavior. Economists emphasize the capacity of markets to aggregate information distributed among traders into rational equilibrium prices. However, psychologists have identified pervasive and systematic biases in individual judgment that they generally assume will affect collective behavior. In particular, recent studies have found that judged likelihoods of possible events vary systematically with the way the entire event space is partitioned, with probabilities of each of N partitioned events biased toward 1/N.
Sonnemann, U., Camerer, C.F., Fox, C.R., and Langer, T. (2013). Psychological biases affect economic market prices. Proceedings of the National Academy of Sciences, 110, 11779-11784.