Biases in Probability Assessment

Most of the study that now show methods that are designed to help people to make decisions
under conditions of uncertainty require estimates of probabilities for the possible outcomes of the
decision. Because of the unavailability of suitable statistical data, these probabilities will usually
be subjective estimates based on human judgement.

Heuristics and Biases

The researches on the quality of human judgement of probability many is the work of Tversky
and Kahnemans work. The central theme of their research is that people use rules of thumb or
heuristics to cope with the complexities of making estimates of probabilities. Three main
heuristics identified by Tversky and Kahneman are (i) availability, (ii) representativesness and
(iii) anchoring and adjustment.

The availability Heuristic

Using the availability heuristic therefore judge the probability of the occurrance of events by
how easily these events are brought to mind. Events which are vivid, recent, unusual or
highlighted by the media are readily recalled or envisaged and therefore assigned high
probabilities. Frequently occuring events are usually easier to recall so the higher probabilites
estimates for them should be reliable.
Biases associated with the availability heuristic

When ease of recall is not associated with probability

Ease of imagination is not related to probability
Illisory correlation
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The representativeness Heuristic

Suppose that you are considering the following questions. What is the probability that Peter, who
you met at last nights conference party, is a salesman? In that questions you have to judge the
probability that a person belongs to a particular category.
Biases Associated with the Representativeness Heuristic
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Ignoring base-rate frequencies

Expecting sequences of events to appear random
Expecting chance to be self-correcting
Ignoring regression to the mean
The conjunction fallacy

The Anchoring and Adjustment Heuristic

Judgement is widely used to make estimates of values. Often these estimates start with an initial
value which is then adjusted to obtain the final estimate. The adjustment from these initial values
is often insufficient; a phenomenon known as anchoring.
Biases associated with achoring and adjustment
1. Insufficient adjustment
Tversky and Kahneman demonstrated the anchoring effect in an experiment in which
subjects were asked to estimate various quantities. In decicion making, anchoring can be
a problem in the estimation of costs, payoffs and probabilities. Forecast that are used in
the decision process may be biased by forecasters anchoring on the current value and
make insufficient adjustment for the effect of future conditions.
2. Overestimating the probability of conjunctive events
The co-occurrence of events is referred to as a conjunctive event. Each of the individual
events which might co-occur is called an elementary event. Research suggests that people
tend to overestimate the probability of conjunctive events occuring because they anchor
on the probability of one of the elementary events and make insufficient adjustment from
this.
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3. Underestimating probabilities for disjunctive events

When asked to estimate the probability of a disjunctive enet it appears that people anchor
on one of the elementary events. With disjunctive events this leads to a tendency to
underestimate the probability. Since the estimation of risk often involves probability
assessments for disjunctive events, this bias can be a serious concern.
4. Overconfidence
People tend to be overconfident about the chances that their estimated range will include
the true value. Tversky and Kahneman argue that this is because thay start with an initial
value, in this case the most likely overhaul time, and then anchor on to it. In consequence,
the adjustments to the upper and lower limits of the range are too samall to give the stated
probability including the true value.

Other Judgemental Biases

1. Believing desirable outcomes are more probable
2. Biased assessment of covariation

Is Human Probability Judgement Really So Poor?

Most criticism have centered on the fact that the research has largely been based on
inexperienced decision makers carrying out artificial tasks in psychological laboratories, rather
than real-world decision makers making real decision. The arguments reviewed next.
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Subjects in studies may be unrepresentative of real decision makers

Laboratory tasks may be untypical of real-world problems
Tasks may be misunderstood by subjects
Subjects may be poorly motivated
Citation bias
Real world studies suggest better performance
People think in terms of frequencies not probabilities