Heuristics and Biases

Why dumb people do smart things

and vice versa.
Overview
Context
Heuristics as biases (defects)
Availability
Anchoring and adjustment
Representativeness (Revisited)
Heuristics as intelligence
Recognition
Fast and frugal
Tit-for-tat (social heuristics
Conclusion

Context
Rational Choice Theory
Utility Theory
Probability Theory
Bounded Rationality
Rational Choice Theory
von Neumann & Morgenstern (1947)
attempted to remove psychological
assumptions from the theory of decision
making:
Individuals have precise information about the
consequences of their actions
Individuals have sufficient time and capability to
weigh alternatives
All decisions are forward looking (e.g., the sunk-
cost fallacy)
Game theory is RCT in practice


Utility & Probability Theory
UT determines how preferences are determined
within RCT
A response to the St. Petersburg Paradox (1734)
Strictly construed, UT assigns a common currency
(utiles) to disparate outcomes
Probabilistic reasoning
Under uncertainty, the value of a choice is the
expected value of probabilistic outcomes
Savage (1972) formalized the conjunction of UT and
Bayesian probabilistic reasoning

Bounded Rationality
Acknowledges several limitations of UT and RCT as
descriptive models of individual choice
People lack:
Perfect information of outcomes and probabilities
Consistent utility functions across domains
Time and cognitive capabilities to comprehensively enact the
prescriptions of UT and RCT
Experts and everyday decision makers are error-
prone
Useful in the domain of problem-solving
Simon (1955) argued for satisficing
Individuals make decisions that are good enough
considering the costs of decision-making, the specific
goal, and cognitive limitations
Why heuristics?
RCT & UT are terrible descriptive models in
many cases
Bounded Rationalitys limitations are
insufficient to explain human behavior
Sometimes information is insufficient even for BR
Many judgments are not goal-directed or encased in
problem-solving tasks
Human errors are systematic
Discovering heuristic rules of judgment can explain
these systematic errors
Heuristics
Substitute easy questions for difficult ones
(attribute substitution)
Defined heuristic rules specify the substitution
Allow judgment and decision making in cases
where specific and accurate solutions are either
unknown or unknowable
Availability, anchoring and adjustment, and
representativeness are frequently considered
metaheuristics since they engender many
specific effects
Heuristics as error-generators
How smart people do dumb things
Kahneman, Slovic, & Tversky (1974)
Availability
Anchoring and adjustment
Representativeness
Availability Heuristic
The ease with which instances or occurrences
can be brought to mind motivates judgment
Retrievability of instances
Were there more males or females on a given list?
Effectiveness of a search set
Do more English words begin with r or have r as the
third letter?
Biases of imaginability in ad hoc categories
Which is larger: 10 C 2 or 10 C 8?
Illusory correlation
Chapman & Chapman (1969)

Condition 1


12345678 = ?



Condition 2


87654321 = ?



Anchoring and adjustment
Insufficient adjustment
Condition 1: 12345678
Mean answer: 512
Condition 2: 87654321
Mean answer: 2250
Anchoring and adjustment
Correct answer: 8! =
12345678 =
87654321 =

40,320

Anchoring and adjustment
Biases in the evaluation of conjunctive and
disjunctive events
Probability of conjunctive events overestimated
Probability of disjunctive evens underestimated
Anchoring in the assessment of subjective
probability distributions
Variance of estimated probability distributions
narrower than actual probability distributions
Common to nave and expert respondents

Representativeness
Likelihood of a condition is judged by similarity to
a condition, mitigating factors notwithstanding
Insensitivity to prior probability of outcomes
Imagine a group of (70/30) lawyers and (30/70)
engineers.
Dick is a 30 year old man. He is married with no
children. A man of high ability and high motivation, he
promises to be quite successful in his field. He is well-
liked by his colleagues.
Participants judged Dick to be equally likely to be an
engineer regardless of prior probability condition
Base rate neglect
Representativeness
Insensitivity to sample size
A certain town is served by two hospitals. In the larger hospital about 45
babies are born each day, and in the smaller hospital about 15 babies are
born each day. As you know, about 50 percent of all babies are boys.
However, the exact percentage varies from day to day
For a period of 1 year, each hospital recorded the days on which more than
60 percent of the babies born were boys. Which hospital do you think
recorded more such days?

The larger hospital (21)
The smaller hospital (21)
About the same (within 5% of each other) (53)
Representativeness
Misconceptions of chance
The law of large numbers applies to small numbers
as well.
Expert researchers select sample sizes too small to
fairly test hypotheses (Cohen, 1969)
Conjunctive fallacy
Linda!
Robust effect:
Linda is more likely to be a bank teller than she is to be a
feminist bank teller, because every feminist bank teller is a
bank teller, but some women bank tellers are not feminists,
and Linda could be one of them
Representativeness
Conjunctive fallacy
Linda!
Robust effect:
1. Linda is more likely to be a bank teller than she is to be a
feminist bank teller, because every feminist bank teller is a
bank teller, but some women bank tellers are not feminists,
and Linda could be one of them
2. Linda is more likely to be a feminist bank teller than she is
likely to be a bank teller, because she resembles an active
feminist more than she resembles a bank teller
65% of participants selected argument 2

Representativeness
Misconceptions of Regression to the Mean
Why flight instructors conclude that criticism is more
effective than praise
Heuristics as intelligence
How dumb people do smart things:
when less (information) is more
Recognition Heuristic
Who will win in the soccer match: Manchester
United vs. Shrewsbury Town? (Ayton & Onkal,
1997)
Which has a greater population: San Diego or San
Antonio? (Goldstein & Girgerenzer, 2002)

Turkish participants as accurate as British in the
former; German participants more accurate than
American in the latter

Fast and Frugal
Heart-attack patient
Standard, multivariate
patient-interview vs.
Limited-information decision
tree of 3 yes/no Qs.
Decision tree more accurate
in classifying risk than
complex statistical methods








Ta
(Breiman et al., 1993) , in
(Todd and Gigerenzer, 1999)
Tit-for-tat
Simple game-theory strategy:
In the first round: always cooperate
Subsequently:
Remembers partners (opponents) one (!) previous
response
Reciprocates previous response
This simple cooperation heuristic bested many highly
sophisticated algorithms that based their decisions on
high memory of partners actions and intense
computational machinery (Axelrod, 1984)
Interacts well with other tit-for-tat machines as well
Why selfish people do nice things a simple
heuristic for social cooperation
Heuristics: bias or intelligence
Bias View
limited decision-making
methods that people often
misapply to situations
where UT, RCT, and PT
should be applied instead
instantaneous responses
based on attribute
substitution switch hard
questions for easy ones
sources of predictable
error and
underperformance

Intelligence View
intelligent behavior need
not be computationally
expensive
frugal representations and
response mechanisms are
more tractable and
plausible
simple rules can generate
rich cognitive and social
effects