The Streetlight Effect

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December 8, 2021
The Streetlight Effect
Understanding the relationship between judgment bias and statistical analysis is essential for any individual. It allows him to make significant and strategic decisions based on reality rather than what is immediately apparent around him. In turn, this allows him to find an answer that can possibly lie outside his immediate field of inquiry. Accordingly, the phenomenon of the Streetlight Effect is sufficiently depicted in the case of Poor Average Joe. The case states that Poor Average Joe spends a significant part of his earnings (1/3rd) immediately after getting his bonus. This increases his chances of going bankrupt, considering his regular earnings and expenses are almost the same. However, although this probability is correct, the question sought to be answered is whether he will be at a lesser risk of bankruptcy if he spends the same amount some time else.
In the solution modeled, it was shown that both the ‘probability of bankruptcy’ and the ‘probability of bankruptcy once’ were significantly lower w...