Blind spots (4): Availability Bias, that which preys on our laziness
“Because of the coincidence of two planes crashing last month, she now prefers to take the train. That’s silly. The risk hasn’t really changed; it is an availability bias.” — Daniel Kahneman
In the last one year, I have had opportunity to “angel” invest in a very small way. It was interesting to learn that nowadays, there are opportunities available to small, retail investors to invest in early stage start-ups. Of course, this opportunity may do more bad than good because investing, the beguiling avocation that it is, attracts many an ordinary person like moths to fire. And exactly like moths, most end up burning themselves at the end. Even the professionals don’t fare all that well — so there is little chance for lay investors like me to do well.
Having said this, when the opportunity to invest in a start-up came about, I took it up because I wanted to understand the mechanics of angel investing. I ended up investing in a company that inserts its products at the last mile of internet connectivity with a promise to improve internet experience. Even after multiple attempts at understanding its core business proposition, I could understand only precious little. But this start-up already had fee-paying customers. And the person who was raising capital for this start-up is a smart, experienced and highly networked individual. Taking confidence from these two factors, I went ahead and invested.
But the second (and the last) such investment I made is what is relevant to this blog. This start up builds an app that enables online classes for schools and also helps schools manage the student life cycle. This business idea was easier to understand. The idea appealed to me — in my mind, it was easy to see how this startup is solving real-life problem (being a parent of two children who have been doing online school for two years now) and hence it was clear that it can succeed. I went ahead and invested. Only later did I realize that I was playing victim to availability bias. Education technology (EdTech) has become quite popular in the last two years and we have been bombarded with advertisements of various highly successful EdTech start-ups (Byjus, Unacademy, Vedantu, WhiteHat Jr etc). Sense of viability of EdTech startups was consequently high in my mind and I went ahead and invested in the EdTech start-up expecting similar success. Easily available examples in my mind made me believe in the credibility of the idea of an EdTech Start-up — I was done in by “availability bias”.
Mind’s susceptibility to be swayed by an idea because of easy (and quick) recall of similar (but unrelated) ideas is what is generally referred to as “Availability Bias”. A good definition that a quick search on the internet threw up: “The availability bias is the human tendency to think that examples of things that come readily to mind are more representative than is actually the case”. This bias essentially emanates from memorable examples. Examples become memorable by their ubiquity and/or recency.
Other examples of this bias
- Recent trends in the IPO market serve as good example: IPOs are being lapped up by investors despite their stratospheric valuations. Gullible investors are easily able to recall recent examples of other IPO successes and are getting swayed into investing in hot IPOs
- News media exploits this bias quite well to increase their TRPs. For example, every once in a while, they manipulate us into thinking that world is falling apart due to climate change by bombarding us with related alarming news items like record high temperatures in various parts of the world, forest fires in California, depleting water levels in various fresh water lakes of the world etc
We tend to outweigh importance of what is easily accessible or available in our minds. When we project returns on stock market, we typically tend to extrapolate recent trends. In fact, in recent times, worldwide stock markets have become the most desired avenue for wealth creation because of their spectacular performance post COVID. Having said this, the last couple of months have not been kind on stock markets and that is already showing in reduction in trading activities by retail investors — availability bias working both ways.
If you ever wondered why performing good work is not enough to progress your career but it is also important to keep showcasing your work — Come year end, based on which team member’s “good” work comes to her/his mind more easily, your boss may accord higher performance rating to that member. For your boss to recognize good but not unadvertised work, she or he should overcome “availability bias” and this has high cognitive cost. In organizations with loose meritocratic culture, it is common to see employees spending lot more time on showcasing work to the bosses and other influential seniors than on actually doing work — they are exploiting availability bias.
Why do we think that world and society is degenerating all the time — because we can easily recall negative news items that take up most of reported news.
How to address this bias?
Like all other strong biases, I do not think it is possible to eliminate this bias completely. However it‘s impact can be reduced and critically, it should be avoided in big decisions. Here is what I do to address this:
- Long term orientation — long term factors tend to eke out “signal” from “noise” that has potential to filter out irrelevant comparisons
- Reduce subjectivity and use objective inputs while making decisions — easier said than done
- Formal rigour in making big decisions as opposed to knee jerk , impromptu, impulsive decisions (e.g., incorporating margins for error, capping downside, providing for serendipity, formally considering odds of success and see if the odds can be improved etc)