Kahneman and Tversky also showed that people tend to use general rules, such as representativeness, to make judgments that contradict the laws of probability.

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"In view of how the laws of probability have yet to be repealed, a steep jump by subprime mortgage loans share of total mortgage originations from the 9% of 1996 to 2000 to the 21% of 2004 to 2006 practically assured an upward shift in mortgage delinquencies, " wrote Moody's in a report Tuesday.

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