Heuristics and biases
I was overjoyed to read that Daniel Kahneman (together with Vernon Smith) won the Nobel Prize for Economics. It's about time, I say!
Kahneman and Tversky's "Judgment under uncertainty; heuristics and biases" has been cited hundreds if not thousands of times. It's seminal work, bringing psychology to economics and questioning whether human beings are indeed as rational as the economists assume. It is among the groundbreaking research that laid the foundation for "behavioural decision theory."
In short, a heuristic is a rule of thumb. They are also known as adhoc patterns of behaviour, habits of thinking that can be taught. These general rules of thumb allow people to make decisions with less time and effort. Although the results may be good estimates, they generally lead to biases (systematic deviations from correct answers.) The following are some heuristics that people follow.
availability heuristic: we think it more likely the more easily we can think of it. For example, we think there are more English words starting with the letter k than having it as the third letter. Actually, the latter is true, but it's easier to think of letters starting with the letter k.
representativeness heuristic: we judge how likely A is to be B by how similar closely A resembles B, even though they might have nothing to do with each other. For example, 1) how likely is Anne Ku a movie star, given that I tell you she is extroverted, likes to wear orange jackets, and has been involved in musical productions since she was a girl? But 2) how likely is Anne Ku an academic, if I tell you that she reads and writes a lot, and enjoys going to conferences? But if I asked you 1) but told you the information for 2), you would probably say she is unlikely to be a movie star.
anchoring and adjustment heuristic: the first number that you start with "anchors" or affects your subsequent estimates. How often we are fixated on an initial price, and we don't bargain far from it. We tend to be biased in favour of our present beliefs, because we don't take enough account of evidence against them.
I haven't been able to find a good, easy-to-read but comprehensive summary of all the heuristics and biases. First of all, we need to get rid of the academic speak. Secondly, we need to find more up-to-date examples. But I'm sure I'm not alone in this quest.
14 October 2002 Monday
"Research in cognitive psychology has shown
that for many important information processing tasks that people face in life,
they employ various strategies that ease their mental burden through simplification"
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