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Chapter 8

The availability bias describes people's tendency to estimate the probability of an event based on how easily examples come to mind, rather than on a complete assessment of objective facts. People are more likely to think shark attacks cause more deaths than falling airplane parts, even though the latter kills 30 times more people, because shark attacks receive disproportionate media attention and are more imaginable. The availability bias can lead people astray in four main ways: only considering easily retrievable information, having a narrow range of experience to draw from, categorizing information in a limited way, and focusing on information that resonates emotionally.

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48 views2 pages

Chapter 8

The availability bias describes people's tendency to estimate the probability of an event based on how easily examples come to mind, rather than on a complete assessment of objective facts. People are more likely to think shark attacks cause more deaths than falling airplane parts, even though the latter kills 30 times more people, because shark attacks receive disproportionate media attention and are more imaginable. The availability bias can lead people astray in four main ways: only considering easily retrievable information, having a narrow range of experience to draw from, categorizing information in a limited way, and focusing on information that resonates emotionally.

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CHAPTER 8

Availability Bias

It is ironic that the greatest stock bubble coincided with the greatest amount of information available. I
always thought this would be a good thing, but maybe it was not so good.

BIAS DESCRIPTION

General Description.The availability bias is a rule of thumb, or mental shortcut, that allows people to
estimate the probability of an outcome based on how prevalent or familiar that outcome appears in
their lives. People exhibiting this bias perceive easily recalled possibilities as being more likely than those
prospects that are harder to imagine or difficult to comprehend.
One classic example cites the tendency of most people to guess that shark attacks more
frequently cause fatalities than airplane parts falling from the sky do. However, as difficult as it may be
to comprehend, the latter is actually 30 times more likely to occur. Shark attacks are probably assumed
to be more prevalent because sharks invoke greater fear or because shark attacks receive a
disproportionate degree of media attention.
Consequently, dying from a shark attack is, for most respondents, easier to imagine than death
by falling airplane parts. In sum, the availabilityrule of thumb underlies judgments about the likelihood
or frequency of an occurrence based on readily available information, not necessarily based on
complete, objective, or factual information.

Technical Description. People often inadvertently assume that readily available thoughts, ideas, or
images represent unbiased indicators of statistical probabilities. People estimate the likelihoods of
certain events according to the degree of ease with which recollections or examples of analogous events
can be accessed from memory. Impressions drawn from imagination and past experience combine to
construct an array of conceivable outcomes, whose real statistical probabilities are, in essence, arbitrary.
There are several categories of availability bias, of which the four that apply most to investors are: (1)
retrievability, (2) categorization, (3)narrow range of experience, and (4) resonance. Each category will be
described and corresponding examples given.

1. Retrievability. Ideas that are retrieved most easily also seem to be the most credible, though this
is not necessarily the case. For example, David Kahneman, Paul Slovic, and Amos Tversky
performed an experiment in which subjects were read a list of names and then were asked
whether more male or female names had been read.1 In reality, the majority of names recited
were unambiguously female; however, the subset of male names contained a much higher
frequency of references to celebrities (e.g., Richard Nixon). In accordance with availability
theory, most subjects produced biased estimates indicating, mistakenly, that more male than
female names populated the list (this particular concept will be reviewed further in Chapter 20).

2. Categorization. In Chapter 5, Representativeness Bias, we discussed how peoples minds


comprehend and archive perceptions according to certain classification schemes. Here, we will
discuss how people attempt to categorize or summon information that matches a certain
reference. The first thing that their brains do is generate a set of search terms, specific to the
task at hand, that will allow them to efficiently navigate their brains classification structure and
locate the data they need. Different tasks require different search sets, however; and when it is
difficult to put together a framework for a search, people often mistakenly conclude that the
search simply references a more meager array of results. For example, if a French person
simultaneously tries to come up with a list of high-quality U.S. vineyards and a corresponding list
of French vineyards, the list of U.S. vineyards is likely to prove more difficult to create. The
French person, as a result, might predict that high-quality U.S. vineyards exist with a lower
probability than famous French vineyards, even if this is not necessarily the case.

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