Availability Bias: Why Shark Attacks Scare You More Than Falling Airplane Parts

Quick question: what kills more people in the United States, shark attacks or falling airplane parts? If you said shark attacks, you are wrong. Falling airplane parts are actually 30 times more likely to kill you. But shark attacks are dramatic, they are all over the news, and they make great movie plots. So your brain says: sharks are clearly the bigger threat.

This is availability bias, and Chapter 13 of Pompian’s book shows how it turns investors into bad decision makers every single day.

Your Brain Takes Shortcuts

Availability bias is basically a mental shortcut. When your brain needs to estimate how likely something is, it does not run through all available data like a computer. It asks: how easily can I think of an example? If examples come to mind quickly, your brain concludes the event is common. If examples are hard to recall, the event feels rare.

This is efficient. Most of the time, it even works reasonably well. But here is the problem: some things are easy to remember not because they are common, but because they are dramatic, recent, or heavily covered in the media. And that is where everything goes wrong for investors.

Four Flavors of Availability Bias

Pompian breaks availability bias into four categories, and each one shows up in investing in its own way.

Retrievability. Things that are easy to retrieve from memory feel more true. Kahneman, Slovic, and Tversky did an experiment where they read a list of names to people. The list had more female names than male names, but the male names included celebrities like Richard Nixon. When asked afterwards, most people incorrectly said there were more male names. The famous names were easier to recall, so the brain overestimated their frequency.

For investors, this means you are more likely to pick a mutual fund company that advertises heavily, like Fidelity or Schwab, than a smaller firm that might actually have better-performing funds. The big names are “available” in your memory. The small ones are not. And the big firms know this. They cherry-pick their best-performing funds for ads, making the entire company seem like a winner.

Categorization. When your brain searches for information, it uses categories. And if a category is hard to search, you conclude there is less data in it. A French person asked to list great U.S. vineyards versus great French vineyards will come up with a longer French list. Not because U.S. vineyards are worse, but because French vineyards are the easier category for that person to navigate.

For investors, this explains home country bias. Ask most Americans where the best investment opportunities are, and they will say the United States. Not because they have analyzed global markets. But because “U.S. investment opportunities” is the easiest category to search in their memory. Never mind that over 50% of global equity market capitalization is outside the U.S. That is a lot of opportunities to ignore just because your mental filing system is domestically organized.

Narrow range of experience. If you work in tech and everyone around you is getting rich from tech stocks, you will overestimate how many tech investments succeed. It is the NBA player problem: a successful college basketball player who made it to the pros sees other successful former college players every day. So he massively overestimates how many college players go pro. In reality, the number is tiny. But his daily experience is full of success stories.

Resonance. People overestimate the frequency of things that match their own personality. A bargain hunter naturally gravitates toward value investing and might ignore growth stocks entirely, not because of analysis, but because “value” resonates with who they are. Classical music fans overestimate how many people listen to classical music. Your personal identity shapes what feels probable to you.

The Political Puzzle

Pompian includes a great example that I want to share. Between 1927 and 1999, which party’s presidency produced higher stock market returns? Many Wall Street professionals lean Republican, so availability bias might lead you to guess Republican. After all, if smart money people prefer Republicans, surely markets do better under them.

But a study by UCLA professors Santa-Clara and Valkanov showed the opposite. A broad stock index returned about 11% more than Treasury bonds under Democratic presidents, versus only 2% more under Republicans. If your first instinct was “Republican,” availability bias got you. The association between Wall Street and Republican politics was more available in your mind than the actual data.

Attention-Driven Buying

The research section of this chapter covers a study by Barber and Odean that I found really practical. They asked a simple question: how do individual investors choose which stocks to buy?

With over 7,000 U.S. stocks available, choosing is overwhelming. So most people do not actually research systematically. They buy stocks that catch their attention. Stocks that are in the news. Stocks with abnormally high trading volume. Stocks with extreme daily returns, up or down.

Barber and Odean looked at investors at a large discount brokerage and found that they made nearly twice as many purchases as sales on days when stocks experienced unusually high trading volume. People were buying simply because the stock was getting attention.

The key finding? Professional investors were much less likely to buy based on attention alone. They had the time and resources to monitor a broader set of stocks and used systematic screening instead of news headlines.

And here is the kicker: attention-grabbing stocks did not outperform the market. In fact, a Cornell researcher named Gadarowski found that stocks receiving the most press coverage actually underperformed the market over the following two years.

So people buy what they hear about, and what they hear about tends to do worse than average. That is availability bias in action.

The Tech Bubble Connection

Pompian connects availability bias directly to the dot-com bubble. In the late 1990s, every magazine, every news show, every dinner conversation was about tech stocks going up. That recent, vivid, constantly reinforced experience made it feel like tech stocks could only go up. People disregarded basic risk analysis because the “available” information was so overwhelmingly positive.

When the bubble burst, the same bias worked in reverse. Suddenly all the available information was negative. People lost confidence and became overly pessimistic, selling at the worst possible time.

Fighting Availability Bias

The advice is straightforward but hard to follow: do not let what is easy to recall substitute for what is actually true.

Before buying an investment, ask yourself: am I buying this because I researched it, or because I heard about it on the news? Do I know about this sector because I analyzed it, or because I work in it? Am I ignoring international stocks because they are bad investments, or because I just do not know much about them?

And remember that information overload is itself a breeding ground for availability bias. We get so much financial news that we think we are well informed. But much of that information is inaccurate, outdated, or presented in misleading ways. Having more information does not automatically make you smarter. Sometimes it just makes the wrong conclusions more “available.”

As Pompian puts it: nothing is as good or as bad as it seems. That is a good rule for life, and an even better rule for investing.

Previous: Framing Bias

Next: Self-Attribution Bias

This is part of a series retelling “Behavioral Finance and Wealth Management” by Michael M. Pompian. Start from the beginning.