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Placeholder Lesson:
** This lesson is generated with AI assistance and approved by Danny Nelson. This lesson will communicate the essence of the topic for now until Danny can create a full lesson. **
The representativeness heuristic is a mental shortcut where people judge probability based on similarity to existing stereotypes.
They assume something belongs to a category because it looks like a typical example.
In investing, this might mean assuming a “good company” is automatically a “good investment.”
The heuristic often leads to ignoring real statistics or base rates.
It causes decisions rooted in surface similarities rather than actual data.