If You Can Recall It, It Must Be Important
"[...] if you can think of an example of something, it must be common or important." — Daniel Kahneman
I remember going through Thinking, fast and slow, by Daniel Kahneman, when I was 19. It was one of the very first books that I read in English, and, much to my surprise, it changed my life. Among the myriad of ideas within the book, one principle stood out: what you see is not all there is. It sounds obvious, but bear with me. We’re quick to judge if something is likely or not by how easily we can recall an example of such a thing.
Same country, different lives
Let me introduce you to Michael and Matthew. Michael, born into generational wealth, recently completed an Economics degree at Harvard Business School. He is planning a six-month trip around Southeast Asia. In stark contrast, Matthew, from a working-class background, just finished his Economics degree at a local community college and is on the job hunt.
After 6 months, Matt is still struggling to find opportunities, and Michael has just returned from Vietnam with a treasure trove of stories. Little did they know that their paths were about to cross at Goldman Sachs, setting the stage for a revealing exploration into the dynamics of privilege. Both of them decide to apply for an internship at the top-tier bank and their friends' reactions couldn't be more different.
Matt finds support and encouragement, though he has the nagging suspicion his friends pity him for being too naive. They do. “He’s setting unrealistic expectations for himself. I don’t understand it.” — they confide when he’s not around. Michael, on the other hand, gets directly introduced to an executive at Goldman Sachs. “That’s a great choice, my dad knows the managing director of the risk department, you can reach out to him directly.” — one of his friends says.
Most of Michael’s friends work at Big 4 consulting firms, top-tier investment banks, high-tech companies, or have their own startups. Matt’s, however, are unemployed, struggle to make ends meet, or work dull office jobs at big corporations no one’s heard about. They live in the same country, but their daily experiences are starkly different. For Matt’s social circle, working at Goldman Sachs sounds far-fetched, close to impossible even. For Michael’s, though, it’s as natural as breathing.
Availability heuristic
What sounds overly ambitious to you is normal for someone else. This has a deep influence on how we make decisions. But how we define normal? By how easily we can think of examples. If most of your friends work at top companies, you believe that’s normal — although it’s not for most people. This is the availability heuristic in a nutshell. Heuristic, by the way, is the pedantic synonym of ‘rule of thumb’.
Most people in the developed world would be lucky to be Matt, but only a tiny minority can even fathom what it is like to live the life of Michael. I happen to be partly both. I have a working-class background, but I’m surrounded by incredibly successful people. Startup founders, freelancers, and high-profile employees from great companies.
I used to be a contractor in data engineering — but I decided to take a break from it. Now I focus on learning about finance and writing. When I tell people about this, I get two different reactions:
“Congrats! It’s amazing that you’re doing that. What’s the name of your newsletter?”
“I see, I’ll let you know if I find something for you.”
Some people understand the value of a newsletter while others, perhaps more used to the 9-5 grind, don’t.
If it’s difficult to recall, it’s infrequent or irrelevant
The opposite of this psychological quirk is also true. Imagine having a hard time recalling upbeat discussions about the stock market — like one month ago. You might think positivity is scarce. But the struggle to remember doesn't mean optimism is rare. The anti-availability heuristic whispers here — positive views may exist but might not be as memorable as negative news. This is explored on one of the top papers on the subject.
In investing, the challenge in recalling positives doesn't mean a universally bearish market. Investors, be aware of this bias, and look beyond immediate memories for a fuller picture of market dynamics. Maybe it’s not that you don’t remember the whole picture completely, but that you don’t have all the required knowledge to make perfect decisions — and trust me, you don’t. In navigating the markets, embracing the anti-availability heuristic can guide a more balanced approach, avoiding underestimating positive sentiments just because they aren't as immediately recallable.
Ironically, the anti-availability heuristic also reveals the danger of underestimating negative drawdowns, a lesson echoed in Taleb's turkey’s illusion. A turkey is fed every day until Thanksgiving comes — RIP to all the turkeys that died last week.
This bias applies to history and sexism too. History — often written with a male-centric ink — tends to overlook women's roles. The availability heuristic contributes to this by making it easy to recall stories of male achievements, leaving women in the shadows. Think about historical tales: they mostly showcase men as the heroes. The lack of female role models might make it seem like they played only supporting roles in history.
Women have been pivotal in various fields, but their stories often get sidelined. Recognising this bias is crucial. We need to actively seek and share stories of women in history, breaking the mold of a historically imbalanced narrative. By doing this, we not only celebrate women's contributions but also make better judgements.
Concluding thoughts
In sum, through tales of Michael and Matthew, I illustrate how our immediate surroundings can warp our perceptions of what's 'normal.' From job aspirations to social circles, what seems ambitious to one might be second nature to another. I then flip the coin with the anti-availability heuristic, showing how our struggle to recall positive sentiments, be it in the stock market or history, doesn't mean they're rare. It's a reminder to look beyond the immediate for a more balanced perspective. I also touch on the historical bias against women, emphasising the need to actively share women's stories to correct the imbalances in our understanding of the past.
Can you name any examples of how the availability heuristic has affected your life?
Alejandro Lopez — The Psychology of Wealth
I absolutely love how you have explained the concept of "available heuristic" with the story of Michael and Matthew. This is a very useful mental framework to keep in mind at different stages in our lives.
This is a great example of how misinformation thrives, too. Frequency of exposure and social validation normalize experiences, (aided here by the access of privilege) as you illustrate with Michael and Matt, turning it into belief which becomes a lens for new information.