Heuristics and Biases

Why dumb people do smart things

and vice versa.

Overview

Context
Heuristics as biases (defects)

Heuristics as intelligence

Availability
Anchoring and adjustment
Representativeness (Revisited)
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 sunkcost 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:

Experts and everyday decision makers are errorprone

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

Perfect information of outcomes and probabilities

Consistent utility functions across domains
Time and cognitive capabilities to comprehensively enact the
prescriptions of UT and RCT

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

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

Were there more males or females on a given list?

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 wellliked 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

(Breiman et al., 1993) , in

(Todd and Gigerenzer, 1999)

Ta

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