Behavioral Biases

Here I go with my first LIII question.

I’m a bit confused with some of the behavioral biases since they seem to be quite overlapped/difficult to distinguish, if not seem the same.

When it comes to representativeness bias (cognitive error that influences decision-making), it is considered as placing too much weigh on new data. Later on, amongst the information-processing biases we have availability bias, which results from putting too much emphasis on info readily available.

Can anyone help me out with a better distinction of the two? Also, I see that they could be “cumulative”, no? What if the data is new and readily available?


while some have overlap, these two i dont believe do. As you say, availability bias, which results from putting too much emphasis on info readily available. For example, lets say every day on the way to work you hear a commercial for kuku cola. at the end of the week, when you go to the supermarket, and you see all the colas, because the phrase kuku cola has been ingrained in your head all week, that information is more readily available and you will pick it. representative bias is placing too much weigh on new data. lets say you go home with your bottle of kuku cola and its a bad jar where you get sick from it. the new data with the new bottle, you will assume that all bottles of kuku cola are bad

the question is what is biasing us. If its readily available information, then its availabity bias. If its on a recent small piece of new data, then its a representative bias.

Hope this helps.

Good question. IMO, these two biases are partially overlapping, though the representativeness bias is a belief-perserverance one and the availability bias is an information-processing one.

The similarities are that both rely on a “best fit” approximation to frame the new info meaning financial market participants are sing stereotypes when making decisions. For example, looking at two-week market data and drawing conclusions for the future one-year market development is a clear sample-neglect (representativeness) bias. But can’t be the same held for the retrievability (availability) bias? Unless you are aware of this bias you may likely have better remembered only the last two weeks of observation and be inclined to base your forecast on this small-sampe data.

To make it more complex, we can even include a confirmation bias which is also related to your base rate by unconsciously seeking for such information which supposts our original beliefs.

Biases are overlapping and there are for sure other classifications as well. They are also interrelated and more often than not one bias comes not alone into play but with others, both cognitive and feeling-based. This is well illustrated in the reading about the investor types. It’s a slippery topic much alike ethics.