Availability Bias

Also known as the availability heuristic, the availability bias is, to put it simple, the habit of using readily available information (top of mind) when it comes to making decisions.

This mental shortcut derives of the notion that whatever piece of information can be recalled (or even recalled first) must of be of added importance. This leads to individuals decision-making abilities being compromised under the weight of recent information on a subject or strong feelings towards it.

Having to rely on what our mind immediately thinks of in order to make snap decisions is a surefire way of creating mental shortcuts.

These shortcuts help us make fast decisions but come with the price of increasing the likelihood of them being flawed. Other pitfalls of the availability heuristic include incorrectly assuming that an event, just on account of it being unusual, is more likely to occur than it really is.

Availability Bias Explained

Amos Tversky and Daniel Kahneman examined this matter thoroughly in the late 1960s.

Ever since, many studies have emerged which can attest for the availability bias on distorting the participants' very beliefs on social reality (example: participants who watch violence on tv, as opposed to the ones who do not watch it, due to the exposure to vivid violence, have higher estimates regarding crime in the real world).

Availability Bias in the stock market

A 2010 study made by Doron Kliger and Andrey Kudryavtsev, entitled "The Availability Heuristic and Investors' Reaction to Company-Specific Events" looked into the availability bias impact on investors perceived investment outcomes and financial risks.

As expected, it was found that individuals will assess probabilities on the back of the most recent information or, alternatively, by considering what they can easily recall, instead of processing all relevant pieces of information available.