The impact of evolving and sporadically changing information on subjective probability judgements in a market for state contingent claims

This paper reports the results of a field study examining the ability of decision-makers to effectively account for evolving and sporadically changing information in their subjective probability judgments. The research is conducted in a naturalistic setting where it is possible to measure the extent to which dynamic information is employed in probability judgments: the horserace betting market. The study explores the subjective probabilities of bettors concerning 16,344 horses running in 1,671 races. The results suggest that bettors are skilled in discounting evolving and sporadically changing information in their probability judgments. They appear to achieve this by adopting effective heuristics to simplify their dynamic information environment and by learning to improve their judgments using outcome feedback. A number of task, individual and environment related factors which help bettors' effectively handle sporadically changing information, and which could be of value to decision-makers in other areas of human endeavor, are discussed.