Definition
Availability bias causes investors to overweight information that is vivid, recent, or emotionally impactful. After a market crash, the "availability" of loss experiences makes investors overestimate future crash probability. After a friend profits from crypto, crypto success seems more common than it statistically is. Media coverage amplifies availability bias by overrepresenting dramatic market events.
lightbulb Example
After the 2008 crisis, many investors kept portfolios in cash for years despite the 2009-2020 bull market. The vivid, traumatic memory of 2008 made another crash feel imminent, causing them to miss the longest bull market in history.
verified_user Key Points
- Vivid or recent events seem more probable
- Media amplifies by overreporting dramatic events
- Leads to excessive caution after crashes
- Causes overreaction to spectacular but rare events