Frequency Illusion

Frequency illusion is a cognitive bias defined by Wikipedia as the illusion in which a word, a name, or other things that have recently come to one’s attention suddenly seems to appear with improbable frequency shortly afterward.

This comes from the mind’s selective attention kicking in when hearing something new. 

The mind then starts to look for that pattern elsewhere.

After an investor learns of a startup solving a new problem the investor seems to hear about that problem more often even when there’s no true frequency.

This gives the investor the impression the startup’s application is more prevalent than it really is.

To overcome the frequency illusion, an investor just knowing it as an effect can realize the startup’s focus is no more prominent than other startups’ focus.

The investor should research the application area to fully understand the magnitude of the problem and its prevalence.

Quantitative analysis will clarify the market size providing a better understanding of the startup’s potential.

 

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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.