Investor Connect Podcast

Availability Heuristic

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

The availability heuristic is a cognitive bias defined by Wikipedia as a mental shortcut that relies on immediate examples that come to a given person's mind when evaluating a specific topic, concept, method, or decision. 

The availability heuristic operates on the notion that if something can be recalled, it must be important, or at least more important than alternative solutions which are not as readily recalled. 

Subsequently, under the availability heuristic, people tend to heavily weigh their judgments toward more recent information, making new opinions biased toward the latest news.

In the startup world, investors bring their recent memories about a startup into the diligence process for investing.

That which they recall is given more weight than that which must be researched.

This puts the investor at a disadvantage in working with incomplete information.

Investors should take good notes on the startup during pitch sessions and use those notes in the diligence phase. 

This will reduce the prominence of easily remembered items and bring important ones to the surface.


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Music courtesy of Bensound.

Direct download: Availability_heuristic.mp3
Category:general -- posted at: 5:00am CDT