The Road to Inflation The Role of Confidence

The Role of Availability Bias

An availability bias occurs when we overweigh evidence that comes easily to mind. This could be recent evidence or what we perceive as meaningful events. As an example, suppose you were in a car accident later on today. It would be a natural tendency for you to drive more carefully for the next couple of weeks or months; as time passes, however, your driving would return to normal. Unfortunately, we are also overly influenced by attention grabbing information that is likely not even pertinent. It causes us to think that events that receive heavy media attention are more important than they really are. Availability bias causes investors to over-react to market conditions whether they are positive or negative.