What Comes to Mind Easily Feels More True
When people estimate the probability or frequency of an event, they tend to rely on how easily examples come to mind. If instances of something are easy to recall — vivid, recent, emotionally charged — we judge that thing to be common or likely. If examples are hard to recall, we judge it to be rare. This is the availability heuristic, first described by Amos Tversky and Daniel Kahneman in a landmark 1973 paper in Cognitive Psychology.
The heuristic works reasonably well under normal conditions: things that happen often do, on average, produce more readily available examples. The problem arises when availability is distorted by factors other than actual frequency — by vividness, recency, or emotional salience.
Availability vs Actual Risk
A classic illustration: most people believe that deaths from shark attacks are more common than deaths from falling aeroplane parts. In fact, falling aeroplane parts kill more people per year. Shark attacks are dramatic and widely reported; aeroplane-part fatalities are not. The difference in media coverage creates a massive difference in availability, which distorts probability estimates.
The same dynamic applies to financial risk. A dramatic stock market crash — particularly if it coincided with personal financial loss — becomes a vividly available memory that distorts future risk assessments for years. Investors who experienced the 2008 financial crisis firsthand consistently overestimate the probability of catastrophic market failure in subsequent years. Conversely, after a prolonged bull market, the possibility of significant decline becomes cognitively unavailable, and risk is systematically underestimated.
The Role of Media
The media amplifies availability bias in financial markets because news coverage is systematically biased toward the dramatic and unusual. A 10% single-day market decline will generate vastly more news coverage than 10 years of steady 7% annual returns, even though the latter represents far greater wealth creation.
This media-amplified availability creates a market where retail investors disproportionately buy after positive news coverage and sell after negative coverage — consistently buying high and selling low relative to the coverage cycle.
Availability and Personal Finance
Availability bias affects personal financial decisions in subtler ways too. People overestimate the likelihood of events they have personally experienced: the friend who was defrauded in an investment scam makes fraud feel ubiquitous; the relative who made a fortune in property makes real estate feel like a safe bet. Both judgments substitute vivid personal experience for statistical base rates.
This is precisely why financial decisions should be grounded in base rate statistics — what actually happens to people who take this action — rather than in personal anecdote or recent memory.
Countering Availability Bias
The primary counter to availability bias is to actively consult base rates: actual statistical frequencies rather than recalled examples. Before estimating how likely something is, ask: what is the documented historical rate? How representative is the vivid example I'm drawing on? What does the data say, as distinct from what feels probable?
Kahneman and his collaborator Amos Tversky consistently found that statistical reasoning — when deliberately applied — can partially override the pull of availability. The key word is deliberately: it requires effort and explicit intention.