One of the only lucid thought experiments ever carried out by econometricians, the “red bus-blue bus” problem illustrates a central drawback that comes with using statistical estimation to quantify the probability a person makes a specific choice when faced with several alternatives. As the thought experiment goes, imagine that you’re indifferent between taking either a car or a red bus to work. Owing to your indifference, an estimate of your probability of picking either option is a coin flip. There is a 50 percent chance that you’re taking the car and 50 percent that you’re taking the red bus. […]
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