The below was lifted from Dr. Fred's web site that Jon D. Markman referenced in his latest article. The point I was interested in is the effect of recent experiences. Seems to me that we have been spending some time recently working through this in regard to the down market and a down qcom stock price. Just another tid bit to support LTB&H I think.
fscwv.edu
(haven't figured out how to paste the actual link)
The Availability Heuristic
A second heuristic frequently used in decision making is the availability heuristic. In this case, estimates of frequency or probability are made on the basis of how easily examples come to mind. People judge frequency by assessing whether relevant examples can be easily retrieved from memory or whether this memory retrieval requires great effort. Because availability is generally correlated with the true, objective frequency of an event, the use of this heuristic usually leads to valid conclusions. However, because several factors that strongly influence memory retrieval are not correlated, they can distort availability in a way that leads to erroneous conclusions.
The classic study that defined the availability heuristic was done by Tversky and Kahneman (1973).
In this study, subjects were asked to consider two general categories of words; those with the letter k in the first position and those with the letter k in the third position. The subjects were then asked to estimate the relative proportions of each kind of word. The researchers found that people guess that about twice as many words have the letter k in the first position relative to words that have k in the third position. Actually, about twice as many words have k in the third position.
The results were explained by the fact that we are very familiar with thinking of words in terms of their initial letters and rarely consider words in terms of their third letters. Consequently, retrieval of words beginning with k is much easier—many more are available—than words with k in the third position. The availability and ease of retrieval lead to the illusory conclusion that many more begin with k.
Because availability is so closely tied to retrieval, it is highly influenced by variables related to memory such as recency and familiarity.
Recency and Availability
Because memory for items generally declines with time, more recent items are recalled more accurately. Since recent items are more available, we judge them to more likely than they really are. Matlin's (1998) text cites examples of the effect of recency on medical practice.
Familiarity and Availability
Familiarity likewise can enhance availability and thus distort our judgements. In general, events with which we are highly familiar lead us to overrate their likelihood relative to events with which we are less familiar. It is in this way that the differential emphasis in the news (what's newsworthy, what's not) explains the powerful influence of journalism. Murders get reported, random acts of kindness rarely do. It is therefore easy to overestimate deaths from murders relative to deaths from disease.
Recency and familiarity then, are seen as "contaminants" of a heuristic that otherwise works pretty well. Effectiveness of FUD?
Tom |
