Behavioural Finance

Sec A

Heuristic

Submitted by:
Alka Rajpal
2021007
The false consensus effect has a subcategory called the false consensus bias, where we assume
that everyone shares our thoughts since they are the first to strike our consciousness. The
availability heuristic, a different psychological phenomenon, can be used to explain the false
consensus effect.

Availability Heuristic

When we choose to base our decisions on the information that is most readily available, we are
using the availability heuristic, a cognitive bias and mental shortcut.
Information that is straightforward to find will be given more weight in our study than
information that is more challenging to find.
On a daily basis, our minds have a lot of information to digest. Every time we make a decision, we
can't consider things out in great detail and length. As a result, we use mental shortcuts to
simplify our lives.
Because a particular piece of information is the most recent or perhaps because it is the most
prominent in memory, it may be easier to access. Our mental processes are influenced by the
knowledge that is easiest to recall rather than relying on factual data. Unfortunately, this means
that occasionally our assessments will be incorrect and have unfavourable effects.

Confirmation Heuristic
We are influenced by the Confirmation Heuristic to look for evidence that supports our pre
existing views, mental models, and hypotheses while ignoring evidence to the contrary.

We use the these heuristic in a wide range of situations.

One illustration of availability The situation when I used to share a flat with my friend serves as a
heuristic in my life.

So in my story, it was way back in 2017, when I lived with my friend in the same room and we
cleaned our rooms ourselves, cooked ourselves and did all the other household chores ourselves
as well. One day, a group of our friends came to our flat and a conversation popped up about who
does the most housework, and the answers we gave were quite different. Both of us took credit
for a substantial amount of the housework, which led to tension between us, and soon after that
incident she moved out and l felt guilty about it but later when we talked about it she said it was
actually no one's fault really. A few months post that she moved back with me.
Now, that I've studied about this concept, it is not surprising for a variety of reasons.

We are firstly more likely to be conscious of the task we undertake. After all, we constantly watch
our own behaviour. While we are away from the house or in another room, the other person may
be cleaning the house. So, it's difficult for us to witness that work being done.
Another reason is because of the availability heuristic. When we make a judgment regarding the
frequency of something, the data that comes to mind the easiest will affect our estimates. For
this reason, each of us made our answers based on the ease with which our actions come to mind.
Of course, there also might be a little bit of self-serving bias at play as well.