Mental Model: Mere Exposure Effect or the Familiarity Principle

The mere exposure effect, also known as the familiarity principle, describes a phenomenon that causes humans to rate or feel positively about things to which they are frequently and consistently exposed, including other people.  All else equal, you will buy products, invest in stocks, frequent establishments, and engage in behaviors that are familiar to you based on past exposure.  This can lead to suboptimal decisions and results and has no basis in rationality.  It can also pin you in to situations that repeat past outcomes, which may not be desirable.

An example of how the mere exposure effect influences your behavior: Imagine you live in New York City.  You are in Central Park and spot a drowning child, splashing in a lake after having fallen off one of the small pedestrian bridges.  There are two people standing next to you on the bank as you chuck aside your shoes and rip off your shirt.  You have a split second to make a decision about which of the two people you will entrust with your wallet, cash, phone, and keys.  One of the two is a man you see a few times a month on the jogging trail.  You don’t know his name.  You have no idea if he is trustworthy.  You don’t know where he lives.  There is no logical reason for you to trust him more than the other person.  He could steal your stuff and change jogging trails.  Odds are, you’d never see him again.

Yet, the probability is overwhelming that the mere exposure effect is going to cause your subconscious brain to rate the jogger “good”, or at least “better” than the stranger, simply because you are already familiar with his face.  He is going to be handed your valuables, even though he could be a con artist or identity thief.

How the Mere Exposure Effect Can Hurt Your Investments

This mere exposure effect can influence your investment portfolio strategy, as well.  Many stock traders tend to invest in companies that are familiar and popular, due in part to social proof and in part to the mere exposure effect.  They will give up an extra 3% or 4% per year, which is an enormous amount of lost wealth over long periods of time, because they rank a familiar company better than an unfamiliar one.

If you are excellent at analyzing banks, for example, and you are like most people, you might find yourself gravitating to very large bank holding companies instead of to the best bargains, which might include banks that trade only a few shares of stock a day on the over-the-counter markets.  There is a part of your primitive brain that feels better if you own shares of companies that your grandmother would recognize instantly even though, as an expert in bank valuation that understands the financial statements far better than most, they don’t represent the best bargains.

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  • I really liked the analogy of drowning boy and how one would decide whether to hand over his valuables to a stranger or a slightly familiar face.

  • Adam J. Mead

    What if we gave into our bias, left our valuables with the jogger, and then turned to the other individual at the scene and said “please help him/her [the jogger] watch my belongings”. This would give the second man a feeling of responsibility for your things and make it known to the jogger someone else knew he had your valuables. By quickly assigning the second person a specific responsibility you’d drastically improve your odds of having your belongings returned to you, right? (As compared to choosing just one.)

    • EXACTLY! That’s the perfect, best answer.

      • Thanks!

        • can giving things to stranger and talking to jogger improve it (fine tuning)… btw nicely done adam (y)

  • Adam J. Mead

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  • Guest

    I think there’s a slight rationality with choosing the familiar stranger. If you’ve seen him multiple times before, you may feel as though there’s a chance you’ll see him again. Also, if that’s his jogging route, would he sacrifice it for a one-off steal? Plus, because you know his face, you would be able to describe him to police. For the other one who’s a complete stranger, you have no information about him whatsoever. It’s unlikely you’d be able to remember his face very well and he could be an out-of-town visitor. At least you can assume the familiar guy is a local or a regular visitor.
    Re: Investments, if the familiarity works, wouldn’t that help the business because the consumers would follow the principle as well and choose the big company over the small one? But I know numbers talk. Even if more people use the big company, it doesn’t necessarily mean it’s a profitable investment… (right?)