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    Bias Has Presented The Banks With Billions in Losses

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    Board members and others often rely on easily available information when making decisions, even if it is not the most relevant or accurate information. This availability bias can lead them to repeat incorrect information simply because it is familiar. For example, financial institutions continued using an incorrect pricing model for derivatives because they did not have an alternative, despite knowing for ten years it did not work properly. Overcoming availability bias requires spending time with diverse people who can provide different perspectives and expertise to get a more complete picture.

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    Bias Has Presented The Banks With Billions in Losses

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    CITRIX
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    Board members and others often rely on easily available information when making decisions, even if it is not the most relevant or accurate information. This availability bias can lead them to repeat incorrect information simply because it is familiar. For example, financial institutions continued using an incorrect pricing model for derivatives because they did not have an alternative, despite knowing for ten years it did not work properly. Overcoming availability bias requires spending time with diverse people who can provide different perspectives and expertise to get a more complete picture.

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    Board members and others often rely on easily available information when making decisions, even if it is not the most relevant or accurate information. This availability bias can lead them to repeat incorrect information simply because it is familiar. For example, financial institutions continued using an incorrect pricing model for derivatives because they did not have an alternative, despite knowing for ten years it did not work properly. Overcoming availability bias requires spending time with diverse people who can provide different perspectives and expertise to get a more complete picture.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    10 views1 page

    Bias Has Presented The Banks With Billions in Losses

    Uploaded by

    CITRIX
    Board members and others often rely on easily available information when making decisions, even if it is not the most relevant or accurate information. This availability bias can lead them to repeat incorrect information simply because it is familiar. For example, financial institutions continued using an incorrect pricing model for derivatives because they did not have an alternative, despite knowing for ten years it did not work properly. Overcoming availability bias requires spending time with diverse people who can provide different perspectives and expertise to get a more complete picture.

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    what to tell you.

    ’ Instead they turn to one of their more familiar methods, whether


    or not it is ideal.
    If something is repeated often enough, it gets stored at the forefront of our
    minds. It doesn’t even have to be true. How often did the Nazi leaders have to
    repeat the term ‘the Jewish question’ before the masses began to believe that it
    was a serious problem? You simply have to utter the words ‘UFO’, ‘life energy’ or
    ‘karma’ enough times before people start to credit them.

    The availability bias has an established seat at the corporate board’s table, too.
    Board members discuss what management has submitted – usually quarterly
    figures – instead of more important things, such as a clever move by the
    competition, a slump in employee motivation or an unexpected change in
    customer behaviour. They tend not to discuss what’s not on the agenda. In
    addition, people prefer information that is easy to obtain, be it economic data or
    recipes. They make decisions based on this information rather than on more
    relevant but harder to obtain information – often with disastrous results. For
    example, we have known for ten years that the so-called Black–Scholes formula
    for the pricing of derivative financial products does not work. But we don’t have
    another solution, so we carry on with an incorrect tool. It is as if you were in a
    foreign city without a map, and then pulled out one for your home town and simply
    used that. We prefer wrong information to no information. Thus, the availability
    bias has presented the banks with billions in losses.

    What was it that Frank Sinatra sang? ‘Oh, my heart is beating wildly/And it’s all
    because you’re here/When I’m not near the girl I love/I love the girl I’m near.’ A
    perfect example of the availability bias. Fend it off by spending time with people
    who think differently than you think – people whose experiences and expertise
    are different than yours. We require others’ input to overcome the availability bias.
    See also Ambiguity Aversion (ch. 80); Illusion of Attention (ch. 88); Association Bias
    (ch. 48); Feature-Positive Effect (ch. 95); Confirmation Bias (ch. 7–8); Contrast Effect (ch.
    10); Neglect of Probability (ch. 26)

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