Question

against his financial advisors advice, frank has decided to invest his money in some risky stocks because he once made quite a bit of money in the stock market. his decision illustrates _______
a. the representativeness heuristic
b. overconfidence
c. the availability heuristic
d. confirmation bias

please select the best answer from the choices provided

a
b
c
d

Explanation:

Analyze the scenario and decision-making process

Frank bases his risky investment decision on a single, highly memorable personal experience (once making quite a bit of money in the stock market) rather than objective financial advice or systematic data.

Evaluate the options against cognitive concepts

• Representativeness heuristic: Judging the probability of an event by comparing it to an existing prototype in our minds.
• Overconfidence: Overestimating the accuracy of our beliefs and judgments.
• Availability heuristic: Estimating the likelihood of events based on their availability in memory; if instances come readily to mind (such as a vivid past success), we presume such events are common.
• Confirmation bias: A tendency to search for, interpret, and recall information in a way that confirms one's preexisting beliefs.

Determine the best fit

Frank's reliance on a easily recalled, vivid personal memory of making money to judge the likelihood of future success is a classic example of the availability heuristic.

Answer:

• A. the representativeness heuristic
• B. overconfidence
• C. the availability heuristic (Correct answer)
• D. confirmation bias