Availability Bias

Availability bias is a human cognitive bias that causes us to overestimate probabilities of events associated with memorable or dramatic occurrences. The availability biasis a mental shortcut that occurs when people make judgments about the probability of events by how easy it is to think of examples. The availability bias operates on the notion that, "if you can think of it, it must be important."

Application of Availability Bias Media Business and Economy Education Criminal Justice Human Life

Overreaction Bias
One consequence of having emotion in the stock market is the overreaction toward new information. According to market efficiency, new information should more or less be reflected instantly in a security's price. Reality, however, tends to contradict this theory. Oftentimes, participants in the stock market predictably overreact to new information, creating a larger-than-appropriate effect on a security's price.

Research Paper 1: Overreaction to Fearsome Risks

Problem and Thesis Overreaction to Environmental Risks (1) Environmental risks are usually imposed unwillingly on external parties (2) We misperceive the risk, as happened after Three Mile Island (3) A series of conservative assumptions we end up with a probability estimate that is far above what an expected value calculation would yield. (4) the emotions stirred by its fearsome aspect lead us to neglect probability values.

The Demand For and Supply of Law

If probability neglect characterizes individual judgment under certain circumstances, government and law are likely to be neglecting probability under those same circumstances. If people show unusually strong reactions to low-probability catastrophes, a democratic government is likely to act accordingly, either because it is responding to the public, or because its officials suffer the same proclivities.

Research Paper 2: The Facebook Investor You Never Want to Become

Facebook is likewise vividly top of mind for many people, who use it so frequently and so very personally. This meant that Facebook loomed larger in investors' minds than it deserved to, given the facts. Availability bias distorts business investments in the same way, particularly when corporations seek new growth. In deciding where to allocate new-product or new-business development funds, they all too often view their core or high-profile markets as the safest bets only because they are familiar

Continued
The alternative to constraining your decisions to the familiar (or the famous) is to ground your investments in a decision-making process that is deliberate, not reactive Focus on discovering customers' needs Pursue a long-term strategy Don't follow the herd