Availability bias leads to distorted decisionmaking from "summary" of Beyond Greed and Fear:Understanding Behavioral Finance and the Psychology of Investing by Hersh Shefrin
Availability bias is a cognitive shortcut that occurs when people make decisions based on information that is readily available to them. This bias can lead to distorted decision-making because it causes individuals to focus on information that is easily accessible, rather than on information that is more relevant or accurate. When people rely on information that is readily available, they may overlook important facts or overlook relevant details that could impact their decisions. One reason why availability bias can lead to distorted decision-making is that people tend to remember vivid or emotionally charged events more easily than mundane or less dramatic events. As a result, individuals may give more weight to information that is emotionally charged or sensational, even if it is not necessarily the most important or accurate information. This can lead to biased decision-making because people may focus on the wrong information or base their decisions on incomplete or inaccurate data. Another reason why availability bias can distort decision-making is that people may overestimate the likelihood of certain events occurring if those events are more easily recalled. For example, if people hear about a plane crash on the news, they may become more fearful of flying, even though flying is statistically safer than driving. This overestimation of risk can lead people to make decisions based on fear rather than on rational analysis of the facts. In addition, availability bias can lead to distorted decision-making because people may rely on information that is more recent or more frequently repeated, rather than on information that is more accurate or relevant. This can cause individuals to overlook important historical data or trends that could provide a more complete picture of the situation. By focusing on information that is readily available, people may make decisions that are based on a limited or biased view of reality.- Availability bias can distort decision-making by causing individuals to focus on information that is easily accessible, emotionally charged, or more recent, rather than on information that is more accurate, relevant, or complete. By understanding the impact of availability bias on decision-making, individuals can strive to make more informed and rational choices that are based on a comprehensive analysis of the facts.
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