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Chapter 2 – Biases

Individual uses rules of thumbs or Heuristics to make a decision. They
can be effective in certain scenarios; however it can lead to biased
outputs.

Types of Biases

A) Availability Heuristic

1. Ease of Recall

When an individual judges the frequency of an event, then the
events which are more frequently recalled appear to be more
numerous.

Since people are more susceptible to vividness and recency, they
are more likely to overestimate unlikely events

E.g.: A person would tend to think that more deaths caused by
motor accidents as compared to cancer.

2. Retrievability (Based on memory structures)

E.g.: The number of words we would expect to be of the form _ _
_ _ _ n _ would be lesser than the number of words expected to
be of the form _ _ _ _ ing. This happens because we tend to
retrieve the words of the latter type because of their
commonality of the ing suffix.

3. Presumed Associations

When the probability of 2 events co-occurring is judged by the
availability of the perceived co-occurrences, then we tend to
assign them much higher probabilities. Also, due to this bias, we
tend to ignore the other relationships.

E.g.: Association of Marijuana users with delinquents. We tend to
assume that it is a high probability that they occur together
because we have seen this association before. Also, we tend to
ignore the other possibilities, i.e. Non delinquents who use

B) Representativeness Heuristic 4.: Entrepreneurs spend far more time in imagining the success while ignoring the base rate of business failures. E. but the usual tendency would be to assume similar probabilities for both the cases. Law of Small Numbers: Belief that small events should be far more representatives of the population from which they were drawn than simple statistics would dictate. 6. E. 7.: Marketing claims 4 out of 5 dentists prescribe toothpaste. Marijuana.: Probability of having 60% of boys in a hospital with 45 kids born on a day is less than as compared to a hospital with 15 births daily. Misconceptions of Chance If a person has 4 failures in a row.g. People tend to generalize irrespective of the sample size. Regression to the Mean .g. the bias occurs if a person ignores the base-rate information and ends up asking the wrong question. 5. then he assumes that the probability of success in the 5th trial goes up. Insensitivity to base rates In this case.g. This happens in situations where a lot of information is provided and we tend to ignore the base-rate data. Insensitivity to sample size Sample sizes are rarely part of our intuition. E. He forgets that the events are independent in nature – Gambler’s Fallacy. This is the tendency to expect that the sequence of random events will look more random. doesn’t mean 80% of the dentists would prescribe the same. Delinquents who do not use Marijuana and Non- delinquents who do not use Marijuana.