Availability Bias

After several weeks of intense news coverage of a single large bank failure, client Ottoline Fairbrother telephones her IAR and demands that her entire diversified portfolio be moved into physical gold, saying that bank failures are clearly widespread now. Her plan and circumstances have not otherwise changed. The bias MOST clearly driving her request is:

1. A.Herding, because she is following the actions of a large group of other investors.Incorrect. Nothing in the facts says other investors are selling or that she is copying them; her trigger is the coverage itself.
2. B.Availability bias, because she is judging the likelihood of widespread failure by how easily a vivid, heavily covered example comes to mind.Correct. Saturation coverage of one dramatic event inflates her perceived probability of a systemic problem, prompting an outsized reaction.
3. C.Anchoring, because she is fixing on a specific reference price for her holdings.Incorrect. No reference price appears in her reasoning; anchoring concerns fixation on a number, not on a news narrative.
4. D.Mental accounting, because she is treating different pools of her money as serving different purposes.Incorrect. She is proposing to move the ENTIRE portfolio, which is the opposite of segregating money into separate mental buckets.

Why: This is availability bias, the tendency to judge how likely something is by how easily vivid examples come to mind. Saturation news coverage makes one dramatic event feel representative of a whole system, so the client overestimates the probability of widespread failure and demands an outsized portfolio response. The adviser role is not to dismiss the concern but to supply base rates and context, restate the long-term plan and the reasons for the current allocation, and make any change only if her actual objectives, horizon or capacity have changed.

Weeks of intense coverage of a single failed regional bank lead a client to demand that her entire cash position be moved out of every bank deposit, even after her adviser shows that failures of that kind remain rare. Her reasoning best illustrates

1. A.hindsight bias.Wrong. She makes no claim to have foreseen the failure before it happened.
2. B.availability bias.Correct. She is substituting how easily the example comes to mind for how likely the event actually is.
3. C.herding.Wrong. She is reacting to news coverage rather than to what other investors are doing.
4. D.overconfidence.Wrong. She is deferring to an alarming story rather than overrating her own judgement.

Why: Availability bias is the tendency to judge how likely something is by how easily an example comes to mind, which makes vividly reported events feel far more probable than the data supports. The client is not disputing the statistics; she is being driven by the ease with which she can picture the failure. The remedy is to put the base rate in front of her and to separate the emotional salience of the story from the actual exposure in her accounts. Had she been reacting to what other investors were doing rather than to the coverage itself, a different bias would be at work.