Think Like the Great Investors: Make Better Decisions and Raise Your Investing to a New Level

Chapter 7

A little knowledge is dangerous (representativeness)

A researcher stopped people in the street and asked if they would participate in a short survey. There was only one question: First, let me tell you that Tony is tall, well groomed and frequently heard whistling classical music. My question: Is Tony more likely to be a public servant or a concert pianist?

This kind of question has been asked many times in research projects in a wide range of countries. Which occupation was most frequently chosen by people in the street: public servant or concert pianist?

We would be in the clear majority if we chose concert pianist as Tony’s most likely occupation. There is a good reason why so many people are likely to make this choice. Moreover most people quite unconsciously do this in many situations throughout their lives.

We were asked whether we thought Tony was a public servant or a concert pianist. There were no other choices we could make. Supposedly to help us make our choice, the researcher gave us three pieces of information:

• Tony was tall.

• Tony was well groomed.

• Tony was frequently heard whistling classical music.

Seemingly, this information was all we had to go on, so we latched on to the information given that Tony was whistling classical music. Nevertheless, a savvy gambler would have bet that Tony was more likely to be a public servant than a concert pianist. ...