Chapter 17 – Psychological Influences on Personal Probability
Personal probabilities are based on how likely an individual thinks an event will occur. Personal
probabilities do not have a specific value. They still follow the rules of relative frequency.
People like to be guaranteed that something will or will not happen. People are more likely to pay to
reduce their risk from a fixed amount to zero than to pay to reduce the risk by the same factor not to
zero. This is the certainty effect. The pseudocertainty effect is where you are offered complete
reduction on one off and not on the others. Example: extended warranties.
Personal probabilities can be distorted by the availability heuristic. This is when an event is more
available in your mind. Example: death by diabetes vs. homicides, people think homicide because it is
advertised more, but diabetes really has more deaths. It is more available to bring one outcome to your
mind than the other. You can make something more available if you make an individual vividly imagine
an event. Risk perception can be distorted by an anchor, or reference point.
The representative heuristic can also distort personal probability. People will assign higher probabilities
to scenarios that are representative of how we imagine things would happen. Some people fall into a
conjunction fallacy. The probability of two events happening in conjunction occurs when scenarios
including the conjunction of events is given a higher probability than the separate events alone. This
breaks Rule #4. The representative heuristic gives detailed scenarios about how an event is likely to
happen. Lawyers use this technique to convince jurors of their side. The representative heuristic can also