John hears from a friend that a stock he is interested in has just released positive earnings after years of negative earnings. He decides to buy in. Which bias would this be- representativeness? availability? Both?
representativeness bias. Representativeness bias places too much emphasis on most recent data. decisions are made based on most recent info
representativeness is polar opposite to conservativeness bias … there you dont update your view as more info gets available
how does this distinguish from availability? Is this info not easily available to him mentally? Similar to if he were to hear an ad?
many biases overlap with each other. i came up against a similar question in MM mocks where there was an investor who thought they were behind the schedule for saving for their retirement. Also they had maintained a tax benefit and another taxable account. They would go-to exotic holidays funded through their taxable account and save for their retirement through tax exempted account. Which bias is this?
I wrote mental account but it was actually self control bias. Grrr!!!
besides, availability bias is when you dont research properly and you give weight to some info that you have stumbled upon somehow. there is usually no prior info available.
In your example, had the question been “John hears from a friend that a stock has just released positive earnings and he decided to buy the stock”, then it would have been availability bias
very fine line. Jee
i would say availability.
difference between the 2 to me is the emotional aspect. availability is a cognitive bias, but leans more to the emotional aspect than representativeness.