Familiarity bias is a rule of thumb or mental shortcut that allows people to estimate the probability of an outcome based on the prevalence or prevalence of it in their lives and experiences. People who are exposed to this type of behavior simply estimate complexities, albeit complex ones.
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A classic example shows that most people think that human deaths from shark attacks are greater than deaths from collisions with falling aircraft parts. Although it may be a little difficult for you to accept, the fact is that the latter is about 30 times more likely. Shark attacks are considered a more common practice, because sharks cause more fear in people’s minds or the media pays more attention to this issue. As a result, it is easier for most people to imagine dying from a shark attack than from dying from the crash of a falling plane.
In short, the bias of familiarity leads to judgments and evaluations that are largely based on information that is readily available, not necessarily complete, objective, or factual information.
Technical description of familiarity bias
People often subconsciously assume that easily accessible ideas, ideas, or thoughts provide unbiased indicators of statistical probability. Individuals estimate the probability of certain events occurring based on the degree of ease of recall or examples of comparable events that can be searched in the mind.
Minds derived from past perceptions and experiences combine to form an array of conceivable outcomes whose degree of probability is actually arbitrary and based on individual preferences. There are several categories of familiarity bias, four of which are most useful to investors:
- Retrievability
- Classification
- Limited experience
- Consonant
Retrievability
Ideas that are easier to retrieve are probably more believable, though they are not necessarily so. Kahneman, Slavic, and Torsky conducted an experiment in which a list of names was read to a group and then asked if the names read were mostly male or female. In fact, most of the names read were specifically women’s names, but men’s names – which were clearly fewer in number – were popular names. According to the theory of familiarization, most people who made biased estimates mistakenly stated that there were more men than women.
Classification
In the display bias, we talked about how people’s minds form and archive different perceptions based on certain classification schemes. Here we discuss how people try to categorize information that is consistent with a particular reference. The first thing the brain does is create a set of search terms that allow them to efficiently navigate their brain’s classification structure and embed the data they need. Different tasks, however, require a diverse set of searches, and when it comes to creating a search framework, people often make mistakes. For example, if a Frenchman tries to name a list of the highest quality vineyards in the United States and France at the same time, he or she may conclude that there is a possibility of vineyards because it is more difficult for him or her to list US vineyards. Quality in the US is less than Qaranse.
Limited range of experiences
When people have a very limited framework of references and want to formulate an estimate based on it, there is often a bias due to the limited range of experience. For example, suppose a very successful college basketball player joins a professional team in the National Basketball Association (NBA) and is a successful player in a few seasons. Because he has a large number of other successful players on a daily basis who have previously been members of the university basketball team, he is likely to underestimate the relative number of unsuccessful university players, as most of the players he currently plays with. It’s all about the successful people on the university basketball team. But the fact is that only a very small percentage of college basketball players end up in the NBA.
Consonant
Each person’s specific situations can affect their judgment and evaluation. Fans of classical music, for example, are more likely to overestimate the proportion of people who are interested in classical music. Conversely, people who do not like classical music may underestimate the number of fans of classical music.
How to overcome the orientation of familiarity?
In general, in order to overcome the orientation of familiarity, investors should do careful research and think about it before implementing investment decisions. Focusing on long-term results and following trends is one of the best tools for focusing on a topic that seems to be subject to orientation bias. Naturally, man has a mental inclination to overemphasize significant recent events. This tendency must always be taken into account. It is a general rule and principle that nothing is as good or bad as it seems, this rule provides a reasonable solution to overcome the stimuli of familiarization bias.
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