The basics of behavioral economics starts out with a few definitions needed to explain the three behavioral economics concepts discussed here: Bounded Rationality, The Availability Heuristic
, and Optimism Bias.
In psychology, availability heuristic
happens when people make judgments based on the immediate example that comes to mind rather than on facts and data.
Unfortunately for us, the imperfections of the availability heuristic
are hard at work as we attempt to gauge risk.
Another example of the systematic and predictable biases of human judgment that affects environmental sensemaking is the tendency for us to estimate what is more likely and true based upon what is more available in memory--the availability heuristic
(Tversky and Kahneman, 1974b).
59) As a result of availability heuristic
errors will occur whereby the likelikhood of some incidents (like a nuclear accident) is (wrongly) perceived as high, whereas others (like a stroke) as relatively low.
They contend that the temptation is best explained as the product of a psychological bias known as the availability heuristic
Individuals use the availability heuristic
for determining how common or likely something is.
Quite noteworthy in this regard are the availability heuristic
, the self-serving bias, and the status quo trap.
Next, an overview of the decision balance (health model) and availability heuristic
(economic model) decision making processes will be described.
2) We examine three heuristics that have been identified by psychologists: the representativeness heuristic (RH), the availability heuristic
(AH), and anchoring and adjustment (AA).
This overestimation is called the availability heuristic
With the availability heuristic
, people base decisions on information they can easily recall, i.