The Availability Bias And Facebook’s Stock
If you bought Google or Apple stock early, you would probably be a happy camper right now. This is probably why a bunch of people did not want to miss out on the next big thing, which was supposed to be Facebook. One man that was profiled by the Wall Street Journal purchased $10,000 worth of Facebook stock after borrowing $5,000 of it from his mother. Facebook’s stock has dropped 25% since the IPO on May 17, but it is slowly recovering. Rebecca Waber of The Harvard Business Review hypothesizes that the reason why so many people lost money on the Facebook IPO was because of the psychological “availability bias” concept.
The availability bias is a thinking condition where we use personal knowledge of a topic to predict how important it is. It is the same reason why people overestimate the risks of flying or having their children abducted. In the cases where it does happen, the media spends days talking about that specific incident.
Since we use Facebook so frequently and personally, people automatically believed that it would surge on the stock market just like Google. A lot of people use Google just as much as they use Facebook. Waber also pointed out that the availability bias condition was also the reason why so many tech companies decided to get into the tablet market. Upon seeing the success of the iPad, creating a tablet felt like a no-brainer and low-risk decision for many companies. However building and marketing tablets are expensive. The tablet market did not show a lot of love for the HP TouchPad, BlackBerry PlayBook, or Lenovo IdeaPad because it was just simply following the herd rather than focusing on unmet customer needs.This article was written by Amit Chowdhry. You can follow me at @amitchowdhry or on Google+ at +AmitChowdhry