“I read a newspaper article reporting that commercial property values in the city have increased 14 percent annually since 2000. According to the article, the average commercial property in the city sold for $1.5 million last year.This makes me very happy because I just purchased a piece of commercial property last month. There is no doubt that it will be a good investment.
answer states representativeness bias, but I dont understand it…
A representative bias is one in which the analyst inaccurately extrapolates past data into the future. An example of a representative bias would be classifying a firm as a growth firm based solely on previous high growth without considering other variables affecting the firm’s future.
I believe this could potentially be attributed to base rate neglect. IE. the 14% increase annually since 2000 may be very high versus a base rate of say, 1-5% since 1900 (ignoring the effects of different regimes). Returns since 2000 may not be representative of future returns on a long-term basis.
Thanks guys