Question

a short literature review about Availability heuristic:

Answer 1

SOLUTION

Meaning

Heuristic is a strategy that allows us to make decision without complicate information gathering and analyzing.

Availability heuristic is a type of heuristic that concentrates on retrieving information from memory.

Introduction

It is decision Making process without complex information gathering and systematic analysis utilized by many people. Even though it may not always be optimal or perfect, it is usually sufficient for the immediate goals. It could be described as mental shortcut when people assess the likelihood for an uncertain event.

LITERATURE REVIEW

Availability heuristic is a common type of cognitive style to assess the relative probability or frequency of an event rely on past experience and memory.

Availability heuristic shows how these easily recalled examples willaffect the judgement on frequency of that event.

There are several evidences that supports the existence of availability

Heuristic. Khan, Qureshi and Ghafoor states that availability heuristic will significantly influence investor’s buying decisions as people tend to choose companies with heavy advertisements

Investment indicated most investors expected market index S&P 500 will either be down or flat in the years 2009, 2010 and 2011 as financial market just suffered from Global Financial Crisis (GFC).

However, S&P actually had good performance during that time period. The reason of this expectation error is that investors had deep memories of GFC and estimated the market will have relative performance in next few years.

Besides, Folkes showed availability heuristic will affect consumers’ judgement of a product performance.

Example

If consumers cannot taste some certain food products, they will be more likely to choose a product with awards for their first time.

Therefore, these evidences proved the availability heuristic’s existence and that it will lead to assessment bias by relying on this mental shortcut.

There are few main Factors which would result in predictable errors

1)

People usually think that the frequency of a certain event or instance is much higher when the similar or related past events is easily retrievable. This bias is shown in a study doneby Lichtenstein where, on average, participants estimated that deaths caused by vehicle accidents are 350 times more frequent than deaths caused by diabetes while the actual statistic shows only 1.5 times more frequent This is due to the fact that vehicular accidents are far more easily retrievable comparing to deaths by diabetesbecause media coverage is far greater in accidents.

. The media bombardment of accidents causes people to recall these incidents easily thus made a wrong prediction fortifies the existence of retrievability of instances bias. The biases of imaginability is a heuristic when someone needs to assess a situationbased on a given rules or certain tasks instead of their memory. Tversky and Kahneman asked a number of test subjects that given 10 people to form a committee consisting k people, how many possible combinations of different groups can be formed when k=2,3,4,…,8 [1]. Without complicated calculations, the subjects can only imagine the different combinations of the committee for when k equals each numbers. This makes the number of combinations seems to be much larger when k=2 than k=8 because it is much easier to imagine different combinations of committee members when k=2. The average estimation taken from the test subjects are 70 combinations for k=2 and 20 combinations for k=8 while the actual answer is 45 inboth cases. This experiment successfully shown how imaginability causes unwanted biases in heuristics.

2)

Illusory correlation which refers to the phenomenon that people could perceive a relationship between two events or variables even though there are unrelated to each other. This idea was raised by Chapman and Chapman who found people tend to overestimate the relationship if there is unusual information exist.

For example,

According to tylervigen.com, the US spending on science, space, and technology have 99.79% correlation with the number of suicides by hanging, strangulation, and suffocation from the year 1999 to the year 2009 .This information can create an illusion for some people that the two are actually related toeach other. However, there are absolutely no relationship between the two events eventhough they maintain such a high correlation for 10 years

3)

The effectiveness of search set. When asked to filter out a massive set of data or information based on a certain rule, the amount of occurrence of a certain objects or instances are linked to the effectiveness of the search. Something easy to search for makes people felt like it is much more abundance.

Example,

which of the following have more words, a word starting with the letter ‘r’ or a word with an ‘r’ in the third letter? According to Tversky and Hahnemann, people approach this question by recalling words in both categories to compare However, most of

them judges the frequency by the ease of recalling the words instead of the actual frequencies. Because they can search for the words starting with ‘r’ much more easily,they think that words starting with ‘r’ is much more abundant when the truth is the opposite. This proves that the effectiveness of searching can cause bias in heuristic judgments.

Everyone has a tendency to maximize their own benefits during decision making instances. However, due to the possibility of biases occurred under availability heuristics thinking method, their decisions usually will not be the most optimized or perfect ones..