How Behavioral Biases Can Skew Your Perception of Risk
It is in our behavioral nature to assess risk based on identifiable examples, not only can that mindset skew decision making, it can leave us vulnerable to risks we are not as familiar with and closed off from opportunities we may believe to be too risky. These things coupled together do not make for clarity of thought when making investment choices.
Availability Bias or Availability Heuristic is “a mental shortcut that relies on immediate examples that come to a given person’s mind when evaluating a specific topic, concept, method or decision.”
As we live in the aftermath of the Great Recession, though the strides that the markets have taken between then and now have been impressive, investors maintain an availability bias that “safe is good” and “risky is bad.” Unfortunately, that leaves investors with quite a dilemma.