Representativeness bias results in faulty judgments from "summary" of Beyond Greed and Fear:Understanding Behavioral Finance and the Psychology of Investing by Hersh Shefrin
Representativeness bias is a cognitive bias that leads investors to make judgments based on how closely an event or situation resembles a particular prototype. When individuals rely on representativeness to make decisions, they may overlook important information and instead focus on superficial similarities. This can result in faulty judgments and poor investment decisions. For example, investors may assume that a stock is a good investment simply because it is in a sector that has been performing well recently. This reliance on representativeness can lead to overlooking fundamental analysis and other critical factors that should be considered when evaluating an investment opportunity. Representativeness bias can a...
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