Heuristics: A Revolution in How We Understand Human Judgment

I realized I have been talking about heuristics without first defining exactly what they are.

Background

In the early 1970s researchers Daniel Kahneman and Amos Trevsky revolutionized the science of human judgment through their papers on Heuristics and Biases.[1] They posited that what often guides our judgment are a handful of leading heuristics as opposed to the prevailing model of homo economicus; a rational actor who employs complex algorithmic processing that follows rules of logic and probability in order to maximize expected utility. [2]

Heuristics - Definition by Philip Cheng

Heuristics are mental shortcuts people use commonly to help make decisions or form judgments, particularly when facing incomplete information or complex problems…The heuristics that an individual employs depends largely on whether forecasts are made from information held in memory, from information about the level of a variable other than the one being forecast, or from information about earlier levels of the variable being forecast. [3]

3 Main Heuristics - Availability, Representativeness, Anchoring-and-Adjustment

Hogarth and Makridakis [1981] suggest that these judgmental forecasts (i.e., forecasting with unaided judgment) are based on the sort of heuristics that Tversky and Kahneman [1974] discussed: availability, representativeness,and anchoring-and-adjustment.[4]

Representativeness

You can recall learning about representativeness and the Linda experiment in my previous blog post.

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[1] Thomas Gilovich, D. Griffin, & D. Kahneman, Heuristics and Biases, The Psychology of Intuitive Judgment (2002), 1.

[2] Id.

[3] Philip Cheng, Improving Financial Decision Making with Unconscious Thought, The Journal of Behavioral Science (2010), 96-97.  

[4] Id. at 97.