ABSTRACT
Microeconomic theory typically concerns exchange between individuals or firms in a market setting. To make predictions precise, individuals are usually assumed to use the laws of probability in structuring and revis ing beliefs about uncertainties. Recent evi dence, mostly gathered by psychologists, suggests probability theories might be inade quate descriptive models of individual choice. (See the books edited by Daniel Kahneman et al., 1982a, and by Hal Arkes and Kenneth Hammond, 1986.)
Of course, individual violations of norma tive theories of judgment or choice may be corrected by experience and incentives in markets, thus producing market outcomes which are consistent with the individualrationality assumption even if that assump tion is wrong for most agents. Whether judg ment and choice violations matter in markets is a question that begs for empirical analysis.
