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Economic Theories on Availability Heuristic - Dictionary of Arguments

Parisi I 67
Availability heuristic/Economic theories/Jolls: Building on Schwartz and Wilde’s (1983)(1) observation about the role of the “availability heuristic” in risk estimation, a potentially effective response to optimistically biased individuals’ tendency to underestimate risk is to harness the availability heuristic. >Bounded rationality/Simon, >Optimism bias/Bibas.
The availability heuristic refers to the tendency to estimate the probability of an event in part based on how easily instances of the event can be called to mind (Tversky and Kahneman, 1973)(2). Individuals who are asked how many words in a 2000-word section of a novel end in “ing,” for instance, give much larger estimates than individuals who are asked how many words in the same-sized segment have “n” as the second-to-last letter, yet the latter is a superset of the former (Tversky and Kahneman, 1983)(3). As with optimism bias, use of the availability heuristic can lead to systematic mistakes in the assessment of probabilities.
Parisi I 68
Example: (...) a series of studies of smoking behavior found that smokers were more likely to believe that smoking would harm their health if they were aware of specific instances of such harm (Sloan, Smith, and Taylor, 2003(4), pp. 157–179). More generally, people tend to respond to concrete, narrative information even when they do not respond, or respond far less, to general statistical information (Nisbett et al., 1982)(5).
Optimism bias: As an illustration of the basic idea of debiasing through the availability heuristic in response to optimism bias, consider the finding of Weinstein (1980)(6) that many people substantially underestimate their risk of cancer.
Parisi I 69
Legal solution: (...) [an example is] Congress’s decision in the Family Smoking Prevention and Tobacco Control Act of 2009 to require multiple “warning labels to be rotated on cigarette packages” (Keighley, 2012(7), p. 576). >Risk perception/Economic theories, >Optimism bias/Economic theories.

1. Schwartz, Alan and Louis L. Wilde (1983). “Imperfect Information in Markets for Contract Terms: The Examples of Warranties and Security Interests.” Virginia Law Review 69: 1387–1485.
2. Tversky, Amos and Daniel Kahneman (1973). “Availability: A Heuristic for Judging Frequency and Probability.” Cognitive Psychology 5: 207–232.
3. Tversky, Amos and Daniel Kahneman (1983). “Extensional Versus Intuitive Reasoning: The Conjunction Fallacy in Probability Judgment.” Psychological Review 90: 293–315.
4. Sloan, Frank A., V. Kerry Smith, and Donald H. Taylor, Jr. (2003). The Smoking Puzzle: Information, Risk Perception, and Choice. Cambridge, MA: Harvard University Press.
5. Nisbett, Richard E., Eugene Borgida, Rick Crandall, and Harvey Reed (1982). “Popular Induction: Information Is Not Necessarily Informative,” in Daniel Kahneman, Paul Slovic, and Amos Tversky, eds., Judgment Under Uncertainty: Heuristics and Biases, 101–116. New York: Cambridge University Press.
6. Weinstein, Neil D. (1980). “Unrealistic Optimism About Future Life Events.” Journal of Personality and Social Psychology 39: 806–820.
7. Keighley, Jennifer M. (2012). “Can You Handle the Truth? Compelled Commercial Speech and the First Amendment.” University of Pennsylvania Journal of Constitutional Law 15: 539–617.

Jolls, Christine, „Bounded Rationality, Behavioral Economics, and the Law“. In: Parisi, Francesco (ed) (2017). The Oxford Handbook of Law and Economics. Vol 1: Methodology and Concepts. NY: Oxford University Press.

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Economic Theories
Parisi I
Francesco Parisi (Ed)
The Oxford Handbook of Law and Economics: Volume 1: Methodology and Concepts New York 2017

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