Topic 3: Beliefs, Heuristics and Biases

Explain what is meant by The availability heuristic, giving an example

• An availability heuristic is a mental shortcut that relies on immediate examples that come to a given person's mind when evaluating a specific topic, concept, method, or decision. As follows, people tend to use a readily available fact to base their beliefs on a comparably distant concept.

• The availability heuristic describes our tendency to use information that comes to mind quickly and easily when making decisions about the future.

• For example, plane crashes can make people afraid of flying. However, the likelihood of dying in a car accident is far higher than dying as a passenger on an airplane.

Explain what is meant by the representativeness heuristic, giving an example.

• In general the representativeness heuristic refers to the phenomenon that global judgment of a category is determined primarily by the relevant properties of a prototype (Kahneman and Tversky, 1972, 1973; Tversky and Kahneman, 1971, 1983).

• This means that people have the tendency to evaluate the likelihood that a subject belongs to a certain category based on the degree to which the subject resembles a typical item in the category.

• An example of a representativeness heuristic is thinking that because someone is wearing a suit and tie and carrying a briefcase, that they must be a lawyer, because they look like the stereotype of a lawyer.

 Explain what is meant by base rate bias, giving an example.

• Base rate fallacy refers to the tendency to ignore relevant statistical information in favor of case-specific information. Instead of taking into account the base rate or prior probability of an event, people are often distracted by less relevant information.
  

• Example: All of us make numerous decisions every day in which the base rate fallacy can lead us astray. For example, we might overestimate the likelihood of dramatic events, like airplane crashes, while underestimating far more common risks, like car accidents.
  

=> + Driving Close to Home is More Dangerous: Over half of the car accidents reported in 2002 happened within 8kms from the driver’s home. Therefore, we tend to overinflate the sense of danger when close to home. In fact, the reason most crashes occur close to home is because we spend most of our time driving near our house. At any one time, we’re no more likely to crash just because we’re near home.

• Gender stereotypes: We will often rely on gender as a stronger indicator of a person’s profession than other factors. For example, 25% of doctors may be women. But when we see a female in a hospital, we might assume she’s the nurse 95% of the time. We have overinflated the probability based on stereotypes.

• Gambler’s Fallacy: The gambler’s fallacy is a type of base rate fallacy. It occurs when a coin lands on heads 5 times in a row, so we overinflate the probability that it will be heads the 6th time we toss the coin. In reality, it’s only got a 50% chance of landing on heads.
  

Explain what is meant by 'the law of small numbers'.

• Law of small numbers is a cognitive bias and refers to the tendency to draw broad conclusions based on small data.

• For example, imagine rolling a dice for 5 times. If two of the rolls result in a 3, and just deciding by this very small sample, it means there is a 2/5 = 40% probability of getting a 3, which is far from the real probability of getting any number on a fair dice, which is 1/6, or roughly 17%.