Sunday, May 01, 2016

Availability Heuristic


http://www.thestar.com.my/business/business-news/2016/04/30/the-one-mistake-that-most-traders-keep-making/

Kahneman and Tversky speculated that the availability heuristic is used in important areas, as when “the fortuitous availability of incidents” (such as a recent airplane crash) ends up distorting people’s judgments. If people are preoccupied about an outcome, and so talk about it a lot, its availability in their minds will increase – which means that people will see it as far more likely than it actually is. This was an early suggestion that people can fall prey to “availability cascades,” which arise when a report of an apparent or potential event spread rapidly from one person to another, leading people to believe something that is not true.

What explains that persistent mistake? Goetzmann and his co-authors hypothesise that because of availability bias, investors give too much weight to recent information in assessing crash probabilities. They speculated that whenever the media reports on bad news about the stock market, investors will overreact.

This a good read on "Financial Behavioural" .. why we read media and over-react and lose money.

It has always been that ... we read some good news, we try to related it to our stocks ... or we read a bad news, we tends to be in fear ...

Read the above article ...

Have a nice Labour Day off.

TEH

No comments: