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OPINION24 March 2015

Bias in the spotlight: heuristics

Opinion UK

In the second of a series of blogs exploring different behavioural economic biases, Crawford Hollingworth looks at heuristics.

Heuristics are shortcuts or rules of thumb for decision-making to aid us in finding a quick, satisfactory, but perhaps not perfect, answer to a complex question.

People frequently use heuristics so they don’t have to go through the mental effort of carefully searching for an optimal solution where a less-than-optimal solution will do just fine. Understood from an evolutionary perspective this makes sense; thinking is metabolically costly and time-consuming, and so cheap ‘good-enough’ solutions can be useful.

Simple rules of thumb

These probably resonate:

  • ‘Mum knows best’ is a classic heuristic.
  • We’ve all divided a cake equally among 8 people, using the ‘1/n rule’ to give everyone an equal 1/8th slice rather than asking each person how much they want and how hungry they are (far too time-consuming).

A common heuristic for quality is price. People often assume that more expensive = better quality. For this reason, a wine-maker might be able to increase sales by making the wine more expensive. This counterintuitive solution goes against standard economic models.

One rule-of-thumb in recent years has been the ‘5-a-day’ rule of thumb, which guides people on how much fruit and vegetables they should eat a day. They can, of course also develop from experience – many of us will throw an envelope straight in the rubbish if it has been franked since we assume it to be junk mail.

Heuristics can be optimal

While it is often assumed that heuristics can sometimes result in irrational sub-optimal decision-making and can produce ‘second-best results’, some researchers, notably the psychologist Gerd Gigerenzer, emphasise that heuristics can be the most optimal way to respond in occasions where we lack information or time. For example, research found that a stock portfolio consisting of companies whose names were familiar to the ordinary person on the street outperformed many other portfolios constructed by financial experts using more complex reasoning.

Gigerenzer argues that heuristics should be seen as adaptive responses to uncertainty, rather than viewing people as riddled with irrational cognitive biases.

Crawford Hollingworth is founder of the Behavioural Architects

@RESEARCH LIVE

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