You work for an international clothing company.
Next year, you will launch a new pink child dress with a large tag “Ti amo” on its front.
Who do you think is the most likely buyer of this pink child dress?
- A father
- A mother
- An Italian mother
Some people may be tempted to answer that the most likely buyer is an Italian mother. Our brain has immediately the cliché of a caring Italian mother buying a dress for her little girl.
However, the real answer is counter-intuitive since the fact to be an Italian mother… implies that you are a mother. The probability to be a mother is higher in absolute than being an Italian mother.
In mathematical terms, the set of being an ”Italian mother” is included in the set of being a ”mother” so that we have necessarily P(”Italian mother”)<P(”Mother”).
The probability of the event 2 is thus often higher than the probability of the event 3.
This common bias is called conjunction fallacy and can affect our investment decisions as well.
Reference
Bar- Hillel, M. (1980). The base-rate fallacy in probability judgments. Acta Psychologica, 44(3), 211-233.