The recent recurrence of Covid Mutation commonly called Omicron has met with a variety of reactions. While some of the countries, especially those in Europe have gone into extreme lockdown fe

Availability Bias

Posted By: Admin

The recent recurrence of Covid Mutation commonly called Omicron has met with a variety of reactions. While some of the countries, especially those in Europe have gone into extreme lockdown fearing another terrible recurrence, in other countries, this news has met with caution, but not with panic. This is based on how these nations perceive the threat based on their past experience with Covid as also the news that they are exposed to.

When we make decisions we tend to be swayed by what we remember. What we remember is influenced by many things including beliefs, expectations, emotions, and feelings as well as things like frequency of exposure.

Availability bias happens when people often judge the likelihood of an event, or frequency of its occurrence by the ease with which examples and instances come easily to mind.

When we are faced with a situation needing us to make a decision, we rely on our past experience and learning based on retrievability and ease of recall, which can substantially and unconsciously influence our judgment. We easily assume that our recollections are representative and true and discount events that are outside of our immediate memory.

Most Indian investors through the past 10 years imagined that Indian Equities would have delivered the highest returns because India is an emerging market and the US is a developed market with lower rates of growth. Yet the actual truth is exactly the opposite, US markets delivered a ( 2011-2020, 13.90% per annum ), while Indian equities have delivered a mere 10% per annum during the same period. Since we do not easily have data or follow the US market, we tend to incorrectly believe that our returns are the highest.

Ways to overcome Availability bias :

Have a team with diverse experiences and points of view. This alone will limit availability bias because people will challenge one another’s thinking naturally ;
Seek broad input from your team. Encourage others to analyse problems from different perspectives, which can help to create an environment that works against availability bias. Encourage diametrically opposing views ;
Read & listen to other voices that are normally not within your normal course or outside your domain.. sometimes they can provide a counter-voice that you did not have access to otherwise.

So the next time you are planning to exit the market based on news of Omicron or invest more, ask yourself the question, do you have all the answers, if not, do not use the little bit of data in your possession to make a decision.