How the availability heuristic influences bad client decisions, and how advisors can overcome it


Consider the following statement:

The financial markets offer the best opportunity for long-term savings and investing.


If you’re an advisor, you aren’t likely to find this statement to be all that controversial. How about your clients? Would most of them agree?

The answer will depend on several factors, such as knowledge, experience, trust in your expertise, etc. There’s one other factor, however, that can have an even greater influence on your client’s opinions and the resulting decisions they make: the ease in which they can recall events that support a given proposition. This effect is so powerful, in fact, that people will dismiss evidence that contradicts beliefs that emerged from past experience, and seek out that which supports it. The kicker is that this is often an unconscious process, so people don’t even know they’re doing it. Moreover, if you were to ask most people whether they believe themselves to be objective and rational in their beliefs, they would be confident that they most certainly are.

This can create a challenge for advisors in the planning process, because clients walk through the door with a history that informs their beliefs and opinions. Many of these perspectives can range from misguided to flat out wrong. Attempts to educate clients can fall flat, as their minds are closed and unyielding to new information. There are many reasons this seemingly unfounded overconfidence occurs. One of the most prominent, however, is due to something called the availability heuristic.

Overestimation and the availability heuristic

When experiences, information and events are easy to recall, human beings overestimate the frequency and probability – i.e. the likelihood – of them occurring in the future. This proclivity for overestimation due to ease-of-recall is referred to as the availability heuristic. (A heuristic is a mental shortcut, where the brain makes quick, intuitive and unconscious decisions and assumptions about the world.)

Amos Tversky and Daniel Kahneman first addressed the availability heuristic in their 1973 paper, Availability: A Heuristic for Judging Frequency and Probability. In the paper they wrote,

“when faced with the difficult task of judging probability or frequency, people employ a limited number of heuristics which reduce these judgments to simpler ones…a person could estimate the numerosity of a class, the likelihood of an event, or the frequency of co-occurrences by assessing the ease with which the relevant mental operation of retrieval, construction, or association can be carried out…For example, one may assess the divorce rate in a given community by recalling divorces among one’s acquaintances.”

Like so many principles in the behavioral sciences, it’s one thing to know that a concept like the availability heuristic exists. It’s quite another to know what to do with that information. This is especially true when you are an advisor attempting to understand how to better engage the minds and motivations of your clients. Making good decisions is hard, and the availability heuristic doesn’t make it easier. The aim of this post is to move beyond a simple descriptions of the concept by providing advisors with a few simple steps to overcome the availability heuristic and guide clients towards better decisions.

The drivers of availability

Before discussing steps you can take to mitigate the negative impacts of the availability heuristic, we need to better understand what leads to information being “available”. Specifically, what causes an event or base of information to have such an impact on one’s memory that it integrates itself into their thinking and becomes easy to recall in the future? For this post, we will cover three broad factors impacting availability: recency, novelty and emotion.


If you were to make the previous statement about the value of the markets to your clients in 1998, they would likely nod their heads in agreement and say, “amen”. In that year, the S&P returned 28.6%. This would not have seemed like a fluke. The years immediately prior to 1998 also saw significant market growth: 1995 (37.6%), 1996 (23.1%) and 1997 (33.4%).  

Flash forward to 2008. Proclaiming the benefits of long-term investing were a far harder sell with the S&P declining 37%. In both cases, the most recent and available information influenced confidence and beliefs about the future as well as the resulting investor activity. It didn’t matter that S&P averages typically ranged between 7 to 10% for any given 10-year historical period. In each case, there was a sense that the times were different. Perceptions about the frequency and probability of events continuing to occur into the future were skewed by recency – they were easy to recall.

Those activities born of either extreme – mania or fear – are not sustainable. What is recent is not permanent, and most systems will regress to the mean. But, it’s those recent events that are more likely to drive decisions and actions, even when people have strong, contradictory information.

The above examples demonstrate the fallacy of dismissing historical trends and averages for what is recent. The 10-year period from 1998 to 2007 experienced far more modest average growth of 7%. The 10-year period following 2008 experienced average S&P returns of 10%. Both periods were far more in-line with historical averages. An understanding of historical averages, however, were not what drove investor behavior or psychology.


In 2001, 1.3 million people were diagnosed with cancer and over half a million people died as a result of cancer. This was not unique to the year 2001. Previous years had similar rates of diagnosis and death as did those that followed. Heart disease had similar rates. In fact, half of all deaths in 2001 (2.4 million) were the result of either cancer or heart disease. These are broad ranging health issues that can impact every person living in the United States, transcending geography or demographics.

That same year, on September 11, just under 3,000 people died as a result of terrorist attacks. These attacks were both localized and rare, accounting for just over one-tenth of one percent of all deaths that year.

Given that cancer and heart disease affected significantly more people on a larger and longer scale than 9-11, it would seem rational to assume the health issues had a greater impact on the psychology and actions of the average American. But, this wasn’t the case. The act of terrorism perpetrated on September 11th resulted in far more fear, outrage and allocation of resources than either cancer or heart disease. Why?

The answer is in the novelty of the events of September 11. We expect millions of people to die each year from cancer and heart disease. This fact is, unfortunately, a part of our psychological status quo, prompting little surprise when we hear statistics regarding the rates at which they occur. Our brains do not become mentally or emotionally strained, and are still able to function in a reduced state of stress called cognitive ease. This state is less thoughtful and analytical about the world, and less likely to retain new information. Cancer and heart disease are just too normal.

In the United States, terrorism was not a part of our status quo. When it occurred, the communal consciousness shifted to a state of cognitive strain. In this state, the brain is more alert and aware as it searches for potential threats. It’s more fearful. Events that trigger and occur within this state are more likely to be remembered, influence perceptions and become easily accessible for future decisions. There were new risks in the environment, and risk is the most novel of factors that result in ease of recall.

This brings us to the third factor that drives availability: emotion.


Statistics about cancer rates are one thing; individual accounts are another. Statistics may evoke shock, but they are less likely to trigger emotion. Joseph Stalin illustrated this truth in his very famous quote, “A single death is a tragedy; a million deaths is a statistic.” Emotion trumps data, and is more likely to be remembered and easily recalled as well as influence our beliefs and actions.

I will never forget the moment I, along with my wife and her family, learned her father had stage 4 lung cancer. Since that time almost two years ago, it seems as though cancer has become more prevalent in my life. I personally know or hear about more people being diagnosed. There’s more stories in the news. It’s suddenly everywhere, impacting my beliefs about my own health and prospects for aging.

The reality, though, is that the rate of cancer affecting those in my life and my exposure to stories about it have not increased. The event with my father-in-law is highly available to being recalled, so I’m more sensitive when exposed. Statistics don’t do this, emotion does.

Advisor summary and takeaway

The more recent, novel and emotional an event is, the more likely it is to take up personal residence in your client’s mental architecture for how the world works. The information will be more available and easier to recall. As a result, their brain will naturally assume the event will occur at a high frequency and continue to do so in the future – whether this is true or not.

Recent market conditions, bad investments, political beliefs, the news or the experiences of friends and family will all influence a client’s beliefs and resulting decisions. For most advisors, this isn’t going to be very revelatory. Still, there are two major issues to contend with when it comes to the availability heuristic.

  • Bad events are easier to recall. Evolution has designed the brain to always be scanning the environment for possible threats. If something presents the potential for risk, it starts paying more attention by analyzing and thinking harder. As a result, negative and threatening events are more likely to trigger novelty and emotion.
  • Facts won’t always help. If a client has an irrational, unrealistic or misguided perspective about the likelihood of future events occurring as a result of those they can recall from the past, providing them with new and better information can do more harm than good. Client beliefs exist in the comfort zone of their status quo. The brain doesn’t like the status quo to be challenged. Providing information that conflicts with it can trigger defensive mechanisms. As opposed to listening to and integrating the new information into their belief system, the client is more likely search out reasons they are right and the new information is wrong. This is a psychological condition referred to as confirmation bias.  

The above are reasons people who refuse to fly, despite being aware of the small statistical risk to their safety, will still thoughtlessly get behind the wheel of a car and drive well over the speed limit.

There are three tactics advisors can adopt in their advising process to better guide clients beyond bad decisions that result from the availability bias.

  • Education and Commitment. Discuss the concept of availability with your client. Your job is to help them overcome their biases and emotional impulses that create barriers to good decisions. They should understand this. As a result, you may present them with information that conflicts with their beliefs. Gain their commitment to be as objective as possible and to seek understanding before making decisions. Sounds simple, but research has demonstrated the positive benefits of educating clients about their own potential cognitive barriers.
  • Outline goals, objectives and options. Explicitly review the client’s goals and objectives. Next, present each option as well as the risks and range of outcomes that could result. Finally, review how these potential outcomes align to their goals and objectives.
  • Prime Client Thinking. The best time to address availability’s impact on decision making is before the point when a client has to make a choice. The reactionary stance a client takes to new information is heightened during the decision making period, because there is something at stake. It’s better to start laying the groundwork early by subtly presenting information that will be relevant at a later time. For example, let’s say you have a very risk averse client. You are expecting some market volatility in the future, and are concerned the client will pull their retirement funds out of the market, despite having a long time horizon. Having discussions early on about historical volatility, diversification and its impact on retirement will help reduce the effect of the availability heuristic.   

By following the above tactics for communicating with clients and creating planning processes, advisors can greatly minimize the potentially damaging consequences of the availability heuristic.

How has the availability heuristic impacted your client’s decision making?

Matt Nelson

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