We create a picture of the world using the examples that most easily come to mind. This is absurd, of course, because in reality, things don’t happen more frequently just because we can conceive of them more easily.
Unusual events (such as botulism) attract disproportionate attention and are consequently perceived as less unusual than they are. The world in our heads is not a precise replica of reality; our expectations about the frequency of events are distorted by the prevalence and emotional intensity of the messages to which we are exposed.
Our views for the world get changed as per available information, media news, etc. We create an expectation about events based on messages which can be distorted and can be far from reality. Media also uses these as exaggerate the news to enhance our viewership.
We majority focus on what is easily available or happens frequently in front of us rather than what can happen rarely or difficult to think. We have fear of death by car, plane or other accident rather than due to medical conditions. Because we have seen and read about many death through an accident.
Availability of the information will alter our decision and act. For example, 9/11 attack or COVID-19 will temporarily create a negative impact on the mind of travelers.
Protective actions, whether by individuals or governments, are usually designed to be adequate to the worst disaster experienced. We as a human being never accept the worst scenario can come. We get anchors with ongoing good period and keep thinking that this will remain forever until a disaster happens.
We all know that we should take healthy food, focus on diet, workout but we did not focus on it until COVID-19 has arrived. So now, the majority of people think about health and diet but still, few who are like dog tail, continue with junk.
Business – “The CEO has had several successes in a row, so failure doesn’t come easily to his mind. The availability bias is making him overconfident.”
Businesses also just not focus on what happens frequently but what can happen. So that they have to prepare for worst-case scenario also.
Investment – We attracted to invest in the stocks, sector which having an easy availability of information and that will lead to the bubble into particular stock or sector. We tend to avoid stock or sector which does not have enough information available though that stock or sector can be good.
When we have received continuous success then we will not generally think of meeting failure. Similarly, with investment, when people getting good returns from their investment, they forget about the inherent risk of equity investment.
When we have performed something recently, then the availability of those experiences goes everywhere with us and that mould our decisions. For example, when we have watched all parts of Sherlock Holmes in a few days, then we have the effect of it on our mind which attracts us to think suspiciously.
Rather on belief in instances, we should focus on statistics which can help us to make a wise decision.
We never prepare ourselves for the worst disaster until it arrives. This is the worst risk management example. When the market keeps rising, we think it will keep going to the upward direction, never fall. This anchoring effect of recently available information ties us to avoid risk. And we focus on risk after it comes to us. We need to focus on what can happen rather than what information is thrown to us. We have to think optimistic as well as pessimistic scenario when investing with all statistics. So that we can make a wise decision.
This entire series will be review with various examples from books which are “Thinking, Fast and Slow” and “The Art of Thinking Clearly“.