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Behavioural finance

F

fischer

Member
Hello

Under issues which might affect probability estimates - the description for representative heuristics and availability appear to be the same.
Could you please explain the difference between the two?

Representative heuristics - people find more probable that which is easier to imagine.
Availability - people are influenced by the ease with which something can be brought to mind.

Cheers
 
There is a subtle difference.

Heuristics is a posh word for mental "shortcuts".

Representative heuristics is where people assume commonality between objects of similar appearance, or between an object and a group it appears to fit into.

If I meet three actuarial students from one company and they are all males, I might assume that the company only employs male actuarial students.

Availability (heuristic) is when people predict the frequency of an event, based on how easily an example can be brought to mind.

"Smoking is not unhealthy. My grandfather smoked three packs of cigarettes a day and lived to be 100."
 
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