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Chapter 9 Biasses in Probability Assessment

Heuristic and Biases
There is three main heuristic identified by Tversky and Kahneman, availability,
representativeness, and achoring and adjusment. The availability heuristic was used to judge
the probability of the occurrence of events by how easily these events are brought to mind.
Events which are vivid, recent, unusual or higlighted by the media are readily recalled or
evisaged and therefore assigned high probabilities. Event which are less available to the mind
are assumed to be less likely.
Biases associated with the availability heuristic
1. When ease of recall is not associated with probability
Studies in the USA found that, although peoples estimates of the probability of death
by various causes were moderately accurate, there were some serious misperceptions.
These were close associated with recent reports of deaths by these causes in
newspaper. For Example, the probabilitys of death by animal bites and sting were
grossly overestimated. In reality, diseases cause 15 time more deaths than accidents.
2. Ease of imagination is not related to probability
The civil engineer in charge of a construction project may find it easy to imagine all
of the circumstances which could lead to the delay of the project such as strikes,
adverse weather conditions, geological problems and interruptions in the supply of
materials and equipment. The result could be a gross overestimate of the risk of the
project overrunning the deadline. Conversely, risks may sometimes be underestimated
because the dangers associated with a course of action are difficult to imagine.
3. Illusory correlation
In a well-known demonstration of illusory correlation, Chapman and Chapman3
conducted an experiment in which naive judges were given information on several
hypothetical mental patients. This information consisted of a diagnosis and a drawing
made by a patient. Later the judges were asked to estimate how frequently certain
characteristics referred to in the diagnosis, such as suspiciousness, had been
accompanied by features of the drawing, such as peculiar eyes. It was found that the
judges significantly overestimated the frequency with which, for example,
suspiciousness and peculiar eyes had occurred together. Indeed, this illusory
correlation survived even when contradictory evidence was presented to the judges.
This research demonstrates the powerful and persistent influence which preconceived
notions (in this case that suspiciousness is associated with the eyes) can have on
judgments about relationships.

The Representative Heuristic

Biases associated with representativeness heuristic
1. Ignoring base-rate frequncies Tversky and Kahneman in a series of experiments
where subjects were asked to judge the probability that individuals had particular
 occupations. Subjects were given both base-rate information and a description of the
person. The following question is typical of those used in the experiments.
2. Expecting sequences of events To appear random When a sequence of events is
generated by a random process people expect the sequence to represent the
characteristics of randomness. The belief is that even short sequences of events should
manifest the essential characteristics of the random process that is generating them.
Runs, where the same result is repeated, are expected to be short and a frequent
alternation between the events is expected. In fact, short random sequences will often
contain several repetitions of the same event. For example, of the 64 possible, and
equally likely, sequences which can be generated by six throws of a fair coin, 38 have
runs of the same result coming up on three or more consecutive throws. Biases like
this can lead to errors in forecasts based on judgment
3 Expecting chance to be self-correcting If a fair coin is tossed and a long sequence of
heads appears, many people will think that the occurrence of a tail on the next throw
is highly probable because the tail is overdue. In a random process, after all, one
would expect the occurrences of heads and tails to be equally frequent. The
phenomenon can also be seen in newspaper articles about lotteries which advise
readers to identify cold numbers, that is, numbers which have not been drawn for a
long period and therefore must have a higher probability of appearing in the next
draw. Of course, coins and lotteries have no memories so there is no reason at all why
they should correct for earlier sequences of results. This bias is another consequence
of the belief that random sequences of events should be representative of what a
random process is perceived to look like.
4. Ignoring regresion to the mean In the nineteenth century The scientist British Sir
Francis Galton found that relatively tall fathers tended to have sons who were shorter
than them. Short fathers, on the other hand, had sons taller than them. In both cases
the sons tended to be closer than their fathers to the mean height of adult males.
Galton referred to this phenomenon, whereby events which are above or below
average tend to be followed by events closer to average, as regression to the mean.
Unfortunately, regression to the mean is widely ignored or misunderstood. According
to Tversky and Kahneman, people assume that, when an event follows an extreme
event, itwill be maximally representative of the extreme event. In other words, people
expect extremes to be followed by similar extremes. They expect extremely tall
fathers to have sons as tall as them. Failure to recognize regression to the mean can
have important consequences.

The anchoring and adjustment heuristic

Biases associated with anchoring and adjustment
Insufficient adjustment Tversky and Kahneman demonstrated the anchoring effect in an
experiment in which subjects were asked to estimate various quantities, such
as the percentage of African nations who were members of the United Nations. Before the
estimate was elicited, a wheel of fortune was spun to generate a random number between 0
and 100 and the subjects were asked whether the required percentage was above or below the
generated number. They were then asked to make their estimate by moving
upwards or downwards from the random number. Remarkably, the random number had a
substantial effect on subjects estimates, with power estimates being associated with lower
random numbers. In decision making, anchoring can be a problem in the estimation of
costs, payoffs and probabilities. Forecasts that are used in the decision process may be biased
by forecasters anchoring on the current value and making insufficient adjustment for the
effect of future conditions.
Overestimating the probability of conjunctive events As Tversky and Kahneman point out,
the estimation of conjunctive events is particularly important in planning. Projects such as the
development of a new product or the completion of a construction project on
time involve a series of elementary events, all of which must succeed for the undertaking as a
whole to be successful. While the individual probability of each of the elementary events
succeeding may be high, the overall probability of success may be low. The tendency of
people to overestimate probabilities for conjunctive events may therefore lead to
unjustified optimism that the project will succeed.
Underestimating probabilities for disjunctive events When asked to estimate the probability
of a disjunctive event it appears that, once again, people anchor on one of
the elementary events. With disjunctive events this leads to a tendency to underestimate the
probability.11 Since the estimation of risk often involves probability assessments for
disjunctive events, this bias can be a serious concern. To illustrate this, suppose that a
chemical plant will leak dangerous fumes if at least one of 10 independent subsystems fails.
Each subsystem is designed to have only a 1/100 chance of failure in the course of a year. An
estimate of the probability of a leakage occurring in the next 12 months is required. Most
people would be likely to anchor on the 1/100 probability of an individual subsystem failing
and produce an estimate close to it. In fact, the correct probability is just under 1/10.

Overconfidence a number of research studies suggest that ranges estimated in this way are
likely to be too narrow; that is, people tend to be overconfident about the chances that their
estimated range will include the true value. Tversky and Kahneman argue that this is because
they start with an initial value, in this case the most likely overhaul time, and then anchor on
to it. In consequence, the adjustments to the upper and lower limits of the range are too small
to give the stated probability of including the true value.

Other judgmental biases

Believing desirable outcomes are more probable Much research has suggested that
people tend to view desirable outcomes as more probable than those which are
undesirable. In one study college students were asked to estimate how likely they
were, relative to other students of the same age and sex, to experience various positive
and negative events in their lives
Biased assessment of covariation Several researchers have found that a similar bias
can occur when people are presented with tables showing the number of times that
events either occurred or failed to occur together.
Is Human Probability Judgement really so poor?
Subjects in studies may be unrepresentative of real decision makers
Real decision makers may have acquired skills in probability estimation as a result of
regular experience of carrying out the task and they are also likely to have expertise
relevant to the decision problem.
Laboratory tasks may be untypical of real-world problems
The tasks used in psychological studies have often involved general knowledge
questions, or paper and pencil exercises, similar to some of those in the questionnaire
at the start of this chapter.The way that subjects approach these tasks may be very
different from the way they tackle judgmental tasks in real-world decision problems
Tasks may be misunderstood by subjects
Subjects may be poorly motivated
As we indicated earlier, many psychological studies have involved undergraduates as
subjects. Where these subjects lacked expertise relating to the experimental task, this
may also have affected motivation.
Citation bias
Poor performance results were cited by authors on average six times more often than
were results showing good performance.
Real-world studies suggest better performance