There are 3 things you should know about the availability heuristic:
- We often misjudge the frequency and magnitude of events that have happened recently.
- This happens, in part, because of the limitations on memory.
- We remember things better when they come in a vivid narrative.
There are two biases emanating from the availability heuristic (a.k.a. the availability bias): Ease of recall and retrievability.
Because of the availability bias, our perceptions of risk may be in error and we might worry about the wrong risks. This can have disastrous impacts.
Ease of recall suggests that if something is more easily recalled in memory it must occur with a higher probability.
The availability heuristic distorts our understanding of real risks.
When we make decisions we tend to be swayed by what we remember. What we remember is influenced by many things including beliefs, expectations, emotions, and feelings as well as things like frequency of exposure. Media coverage (e.g., Internet, radio, television) makes a big difference. When rare events occur they become very visible to us as they receive heavy coverage by the media. This means we are more likely to recall it, especially in the immediate aftermath of the event. However, recalling an event and estimating its real probability are two different things. If you're in a car accident, for example, you are likely to rate the odds of getting into another car accident much higher than base rates would indicate.
Retrievability suggests that we are biased in assessments of frequency in part because of our memory structure limitations and our search mechanisms. It's the way we remember that matters.
The retrievability and ease of recall biases indicate that the availability bias can substantially and unconsciously influence our judgment. We too easily assume that our recollections are representative and true and discount events that are outside of our immediate memory.
In Thinking Fast and Slow, Kahneman writes:
People tend to assess the relative importance of issues by the ease with which they are retrieved from memory—and this is largely determined by the extent of coverage in the media.
Nobel Prize winning Social Scientist and Father of Artificial Intelligence, Herbert Simon, wrote in Models of My life:
I soon learned that one wins awards mainly for winning awards: an example of what Bob Merton calls the Matthew Effect. It is akin also to the phenomenon known in politics as “availability,” or name recognition. Once one becomes sufficiently well known, one's name surfaces automatically as soon as an award committee assembles.
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According to Harvard professor Max Bazerman
Many life decisions are affected by the vividness of information. Although most people recognize that AIDS is a devastating disease, many individuals ignore clear data about how to avoid contracting AIDS. In the fall of 1991, however, sexual behavior in Dallas was dramatically affected by one vivid piece of data that may or may not have been true. In a chilling interview, a Dallas woman calling herself C.J. claimed she had AIDS and was trying to spread the disease out of revenge against the man who had infected her. After this vivid interview made the local news, attendance at Dallas AIDS seminary increased dramatically. Although C.J.'s possible actions were a legitimate cause for concern, it is clear that most of the health risks related to AIDS are not a result of one woman's actions. There are many more important reasons to be concerned about AIDS. However, C.J.'s vivid report had a more substantial effect on many people's behavior than the mountains of data available. The Availability Heuristic describes the inferences we make about even commonness based on the ease with which we can remember instances of that event…
While this example of vividness may seem fairly benign, it is not difficult to see how the availability bias could lead managers to make potentially destructive workplace decisions. The following came from the experience of one of our MBA students: As a purchasing agent, he had to select one of several possible suppliers. He chose the firm with whose name was the most familiar to him. He later found out that the salience of the name resulted from recent adverse publicity concerning the firm's extortion of funds from client companies!
Managers conducting performance appraisals often fall victim to the availability heuristic. Working from memory, vivid instances of an employee's behavior (either positive or negative) will be most easily recalled from memory, will appear more numerous than commonplace incidents, and will therefore be weighted more heavily in the performance appraisals. The recency of events is also a factor: Managers give more weight to performance during the three months prior to the evaluation than to the previous nine months of the evaluation period because it is more available in memory.
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There are numerous implications for availability bias for investors.
A study by Karlsson, Loewenstein, and Ariely (2008) showed that people are more likely to purchase insurance to protect themselves after a natural disaster they have just experienced than they are to purchase insurance on this type of disaster before it happens.
This pattern may be sensible for some types of risks. After all, the experience of surviving a hurricane may offer solid evidence that your property is more vulnerable to hurricanes than you had thought or that climate change is increasing your vulnerability to hurricanes.
Robyn M. Dawes, in his book Everyday Irrationality, says:
What is a little less obvious is that people can make judgments of the ease with which instances can come to mind without actually recalling specific instances. We know, for example, whether we can recall the presidents of the United States–or rather how well we can recall their names; moreover, we know at which periods of history we are better at recalling them than at which other periods. We can make judgments without actually listing in our minds the names of the specific presidents.
This recall of ease of creating instances is not limited to actual experience, but extends to hypothetical experience as well. For example, subjects are asked to consider how many subcommittees of two people can be formed from a committee of eight, and either the same or other subjects are asked to estimate how many subcommittees of six can be formed from a committee of eight people. It is much easier to think about pairs of people than to think about sets of six people, with the result that the estimate of pairs tends to be much higher than the estimate of subsets of six. In point of logic, however, the number of subsets of two is identical that of six; the formation of a particular subset of two people automatically involves the formation of a particular subset consisting of the remaining six. Because these unique subsets are paired together, there are the same number of each.
This availability to the imagination also creates a particularly striking irrationality, which can be termed with the conjunction fallacy or compound probability fallacy. Often combinations of events or entities are easier to think about than their components, because the combination might make sense whereas the individual component does not. A classic example is that of a hypothetical woman names Linda who is said to have been a social activist majoring in philosophy as a college undergraduate. What is the probability that at age thirty she is a bank teller? Subjects judge the probability as very unlikely. But when asked whether she might be a bank teller active in a feminist movement, subjects judge this combination to be more likely than for her to be a bank teller.
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Retrievability (based on memory structures)
We are better at retrieving words from memory using the word's initial letter than a random position like 3 (Tversky & Kahneman, 1973).
In 1984 Tverksy and Kahneman demonstrated the retrievability bias again when they asked participants in their study to estimate the frequency of seven-letter words that had the letter “n” in the sixth position. Their participants estimated such words to be less common than seven letter words ending in the more memorable “ing”. This response is incorrect. All seven letter words ending with “ing” also have an “n” in the sixth position. However it's easy to recall seven letter words ending with ing. As we demonstrated with Dawes above, this is another example of the conjunction fallacy.
Retail locations are chosen based on search as well, which explains why gas stations and retail stores are often “clumped” together. Consumers learn the location of a product and organize their mind accordingly. While you may not remember the name of all three gas stations on the same corner, your mind tells you that is where to go to find gas. Each station, assuming all else equal, then has a 1/3 shot at your business which is much better than gas stations you don't visit because their location doesn't resonate with your minds search. In order to maximize traffic stores must find locations that consumers associate with a product.
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People tend to develop a preference for things because they are familiar with them. This is called the exposure effect. According to Titchener (1910) the exposure effect leads people to experience a “glow or warmth, a sense of ownership, a feeling of intimacy.”
The exposure effect applies only to things that are perceived as neutral to positive. If you are repeatedly exposed to something perceived as a negative stimuli it may in fact amplify negative feelings. For example, when someone is playing loud music you tend to have a lot of patience at first. However as time goes on you get increasingly aggravated as your exposure to the stimuli increases.
The more we are exposed to something the easier it is to recall in our minds. The exposure effect influences us in many ways. Think about brands, stocks, songs, companies, and even the old saying “the devil you know.”
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The Von Restorff Effect
“One of these things doesn't belong,” can accurately summarize the Von Restorff Effect (also known as the isolation effect and novelty effect). In our minds, things that stand out are more likely to be remembered and recalled because we give increased attention to distinctive items in a set.
For example, if i asked you to remember the following sequence of characters “RTASDT9RTGS” I suspect the most common character remembered would be the “9” because it stands out and thus your mind gives it more attention.
The Von Restorff Effect leads us to Vivid evidence.
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According to William James in the Principles of Psychology:
An impression may be so exciting emotionally as to almost leave a scar upon the cerebral tissues; and thus originates a pathological delusion. For example “A woman attacked by robbers takes all the men whom she sees, even her own son, for brigands bent on killing her. Another woman sees her child run over by a horse; no amount of reasoning, not even the sight of the living child, will persuade her that he is not killed.
M. Taine wrote:
If we compare different sensations, images, or ideas, we find that their aptitudes for revival are not equal. A large number of them are obliterated, and never reappear throughout life; for instance, I drove through Paris a day or two ago, and though I saw plainly some sixty or eighty new faces, I cannot now recall any one of them; some extraordinary circumstance, a fit of delirium, or the excitement of hashish would be necessary to give me a chance at revival. On the other hand, there are sensations with a force of revival which nothing destroys or decreases. Though, as a rule, time weakens and impairs our strongest sensations, these reappear entire and intense, without having lost a particle of their detail, or any degree of their force. M. Breirre de Boismont, having suffered when a child from a disease of the scalp, asserts that ‘after fifty-five years have elapsed he can still feel his hair pulled out under the treatment of the ‘skull-cap.'–For my own part, after thirty years, I remember feature for feature the appearance of the theater to which I was taken for the first time. From the third row of boxes, the body of the theater appeared to me an immense well, red and flaming, swarming with heads; below, on the right, on a narrow floor, two men and a woman entered, went out, and re-entered, made gestures, and seemed to me like lively dwarfs: to my great surprise one of these dwarfs fell on his knees, kissed the lady's hand, then hid behind a screen: the other, who was coming in, seemed angry, and raised his arm. I was then seven, I could understand nothing of what was going on; but the well of crimson velvet was so crowded, and bright, that after a quarter of an hour i was, as it were, intoxicated, and fell asleep.
Every one of us may find similar recollections in his memory, and may distinguish them in a common character. The primitive impression has been accompanied by an extraordinary degree of attention, either as being horrible or delightful, or as being new, surprising, and out of proportion to the ordinary run of life; this it is we express by saying that we have been strongly impressed; that we were absorbed, that we could not think of anything else; that our other sensations were effaced; that we were pursued all the next day by the resulting image; that it beset us, that we could not drive it away; that all distractions were feeble beside it. It is by force of this disproportion that impressions of childhood are so persistent; the mind being quite fresh, ordinary objects and events are surprising…
Whatever may be the kind of attention, voluntary or involuntary, it always acts alike; the image of an object or event is capable of revival, and of complete revival, in proportion to the degree of attention with which we have considered the object or event. We put this rule into practice at every moment in ordinary life.
An example from Freeman Dyson:
A striking example of availability bias is the fact that sharks save the lives of swimmers. Careful analysis of deaths in the ocean near San Diego shows that on average, the death of each swimmer killed by a shark saves the lives of ten others. Every time a swimmer is killed, the number of deaths by drowning goes down for a few years and then returns to the normal level. The effect occurs because reports of death by shark attack are remembered more vividly than reports of drownings.
Availability Bias is a Mental Model in the Farnam Street Mental Model Index