Behavioral Bias: The Representative Heuristic

Bias/ Heuristic: Representative Heuristic

Quick Definition (via Behavioral Finance Net)

When people are asked to judge the probability that an object or event A belongs to class or process B, probabilities are evaluated by the degree to which A is representative of B, that is, by the degree to which A resembles B.

Extended Definition:

“The best explanation to date of the misperception of random sequences is offered by psychologists Daniel Kahneman and Amos Tversky, who attribute it to people’s tendency to be overly inflenced by judgments of “representativeness.”8 Representativeness can be thought of as the reflexive tendency to assess the similarity of outcomes, instances, and categories on relatively salient and even superficial features, and then to use these assessments of similarity as a basis of judgment. People assume that “like goes with like”: Things that go together should look as though they go together. We expect instances to look like the categories of which they are members; thus, we expect someone who is a librarian to resemble the prototypical librarian. We expect effects to look like their causes; thus we are more likely to attribute a case of heartburn to spicy rather than bland food, and we are more inclined to see jagged handwriting as a sign of a tense rather than a relaxed personality.”
Gilovich (1991), page 18

Classic Examples/Studies (Via Wikipedia):

1. Taxi Cab Problem (Kahneman & Tversky)

“A cab was involved in a hit and run accident at night. Two cab companies, the Green and the Blue, operate in the city. 85% of the cabs in the city are Green and 15% are Blue. A witness identified the cab as Blue. The court tested the reliability of the witness under the same circumstances that existed on the night of the accident and concluded that the witness correctly identified each one of the two colors 80% of the time and failed 20% of the time. What is the probability that the cab involved in the accident was Blue rather than Green knowing that this witness identified it as Blue?”

2. Tom W Case

“Tom W. is of high intelligence, although lacking in true creativity. He has a need for order and clarity, and for neat and tidy systems in which every detail finds its appropriate place. His writing is rather dull and mechanical, occasionally enlivened by somewhat corny puns and by flashes of imagination of the sci-fi type. He has a strong drive for competence. He seems to feel little sympathy for other people and does not enjoy interacting with others. Self-centered, he nonetheless has a deep moral sense.”

Additional Papers & Research On Representative Heuristic

Representative Heuristic Via Changing Minds

Testing bayes rule and the representativeness heuristic: Some experimental evidence - Via Ideas Repec

Representative Heuristic Extended Bibliography - Via Behvioral Finance

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