Gray swan neglect: Do forecasters account for low(ish) probability events?

Economic choices depend on our predictions of the future. Yet, at times, predictions are not based on all possible outcomes, but instead on the single most likely one, which is treated as though certainly the case-that is, digitally. Four sets of studies test whether this digitization bias occurs in higher stakes economic contexts. When making predictions about the future asset prices, participants ignored conditional probability information given relatively unlikely events and relied entirely on conditional probabilities given the more-likely events. This effect was found for both financial aggregates and individual stocks, for binary predictions about the direction and continuous predictions about expected values, and even when the "unlikely" event explicitly had a probability as high as 30%; further, it occurred in incentive-compatible conditions and among financial professionals. Implications for probabilistic cognition and behavioral economics are discussed. (PsycInfo Database Record (c) 2026 APA, all rights reserved).