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
 Marijuana, Delinquents who do not use Marijuana and Non-
delinquents who do not use Marijuana.

B) Representativeness Heuristic

4. Insensitivity to base rates

In this case, the bias occurs if a person ignores the base-rate

information and ends up asking the wrong question. This happens
in situations where a lot of information is provided and we tend to
ignore the base-rate data.

E.g.: Entrepreneurs spend far more time in imagining the success

while ignoring the base rate of business failures.

5. Insensitivity to sample size

Sample sizes are rarely part of our intuition. People tend to

generalize irrespective of the sample size.

E.g.: 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, but the usual tendency would be to assume similar
probabilities for both the cases.

6. Misconceptions of Chance

If a person has 4 failures in a row, then he assumes that the

probability of success in the 5th trial goes up. 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.

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. E.g.: Marketing claims
4 out of 5 dentists prescribe toothpaste, doesn’t mean 80% of the
dentists would prescribe the same.

7. Regression to the Mean