If, in a given text, you were to randomly sample a word (three or more letters) with the letter 'r' in it, which word are you more likely to come across?A The word beginning with the letter 'r'.B The word having 'r' as the third letter.Did you tick the first option? Of the 152 people who answered this question as part of a psychology experiment in the US, 105 (69%) chose the first answer-and were wrong. Blame it on intuitive analysis!
People tend to approach this problem by recalling words that begin with the letter 'r' (read, rest) and then think of words which have 'r' in the third position (card, market). They tend to estimate the answer by the number of examples they can recollect for each possibility. As it is much easier to search for words beginning with a particular letter than those that have it in the third place, a majority will choose the first answer. However, the fact is that in any given English text, consonants like 'r' and 'k' are more frequent in the third position than in the first place. The paragraph you are currently reading has 15 words with 'r' in the third place, while there are only five words which begin with 'r'.
| People consider an event to be more probable if they can easily think of similar occurrences |
Behavioural scientists Amos Tversky and Daniel Kahneman blame this error of judgement on the logical fallacy called 'availability heuristic'. The two scientists, who performed a number of tests such as the one above, found that in certain situations, people judge the frequency or probability of events in co-relation to the ease with which they can think of such examples. In other words, they consider an event to be more probable if they can think of similar events easily.
This fallacy comes into play frequently in the financial world. So, if you are regularly exposed to success stories at the stock market, you will have a predisposition to think of these as sure-shot ways to make money, and will be blind to the flip side. Similiarly, if you have come across several good reports on a particular stock, you will be more inclined to buy it.
Tversky and Kahneman believe that instead of reasoning, it is factors like retrievability of instances, familiarity, imaginability and exposure that influence decisions. If you ignore the fundamental statistical rule, it leads to a biased and erroneous result. This is why, if you are part of the minority (31%) who went with the second option, you must have stepped back and questioned the premise of your answer.
According to decision-making experts Jay. E. Russo and Paul J.H. Schoemaker, the best way to avoid falling prey to availability heuristics is to ask yourself a few questions before making a probability or frequency judgement.
Firstly, verify the data on which you have based the conclusion. For instance, while making an investment, don't limit yourself to the agent's recommendations; conduct your own research. It is also important to question the credibility of the sampling process. Are the options you are considering to put your money in the best or simply the opportunities 'you' know about? The key to making the right choice is to follow the facts that make a complete picture and not the ones that are easily available.
