Cognitive Bias of the Week: The Availability Bias

The availability bias is the human tendency to judge the natural frequency of an event by how many examples of the event come to mind. For example, people can readily think of examples of plane crashes or murders, because these events are well publicized, but not so easily think of examples of death from heart disease, so they tend to believe rare deaths happen more frequently than they actually do. One fact that may shock you is that children are about eighty times as likely to drown in a swimming pool than they are to kill themselves or another with a parent's firearm. When judging the chance of landing in one of two future world states (flood or no flood, banking crisis or no banking crisis), we tend to over-weight the one that we have examples for. We should expect that people who have never lived through an earthquake, like me, would underestimate the probablility and necessity of earthquake preparation, while people should over-prepare for an earthquake in the years following a large one. Availability bias is what leads sports fans to view a team's win streak and compute that there's no way that team could lose; there just aren't examples of it happening. This is relevant for consultants because consultants often need to estimate the risk that various events occur, and if they underestimate the probability that a bad event occurs, then they can damage themselves or their company. For example, in 2006 everyone underestimated the probability of a nationwide downturn in the housing market, because it had never happened before. To give good advice, consultants need to have a good grasp on the various risks and probability that each one occurs. Furthermore, consultants may be swayed by advice they've recommended in the past, because it's available to them. As Bob Sutton and Jeffrey Pfeffer write in Hard Facts,
[VC Steve] Dow has been a general partner at Silicon Valley's Sevin Rosen since 1983 and served on dozens of boards over the years. He tells us that many board members, especially young venture capitalists who lack operational experience, are quick to talk about replacing the CEO at the first hint of trouble. Dow asks them, "Now, suppose you were CEO, what would you do differently than the one we have right now? Dow says that most of the time they can't think of much, if anything, they would change.
For many of those young VC's, the CEO is the available face of the company, and swapping the CEO's been what they have done in the past. These cognitive shortcuts lead people to believe that replacing the CEO will do good things for the company. One good way to overcome this bias is to force people to bet on their beliefs, or establish a market for predictions. When people can profit from mistaken beliefs, the odds are high that the price of an event occurring will be a good guess of the probability that it actually occurs. The bias may still be there, but if only one person in your organization is unbiased, they could bet enough money to correct the market. A second measure is to fight a heuristic with a heuristic. If you're giving the odds that an event will occur, and the event's never happened before, give it two or three times as much weight as you think it deserves. It's not perfect but it's probably better than the original estimate.

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