Efficiency or laziness?
Heuristics as tricks from the decision toolbox
A heuristic (or trick?) is a 
simplified mental process used routinely
to analyze an event or an issue, to find a solution and to make a
decision..
It is a mental habit, a usual practice, based on a thinking shortcut, a rule of thumb, an
instant recall, a rather fast and simple recipe
simplified mental process used routinely to analyze an event or an issue, to find a solution and to make a
decision.. It is a mental habit, a usual practice, based on a thinking shortcut, a rule of thumb, an
instant recall, a rather fast and simple recipe
People tend to embrace those presetmodels / schema in many
situations, as rigid, but easy and quick, tools to bring solutions.
For example, people use normally an heuristic as their itinerary to their
workplace. taking their usual bus at the usual time, or the usual road with
(for some) the usual Ferrari.
They try an alternative one only when a delivery truck blocks a street or
the public transportations went on strike or the Ferrari has a blown tire.
The "heuristic" word is used not only in cognitive psychology,
but also for computer software routines.
but also for computer software routines.
Possible outcomes of heuristic-driven decisions
When your usual tricks decide for you,
are they helping you or sending you to the ditch?
When an heuristic helps
- In repetitive situations, it might bring useful solutions.
if the trick have been prepared, tested beforehand, found to be smart and
then stored in the mind. And of course if it really fits the current situation.
then stored in the mind. And of course if it really fits the current situation.
- It normally saves
time and effort
(except of course when based on complicated practices / rites / rules)
- In case of emergency, it helps to react
fast with a preset routine.
When it brings problems
- When applied to situations with new (or overlooked) elements,
an heuristic might bring a suboptimal outcome. and even be counterproductive
and damaging one.
When facing
uncertainties such a
routine solution has a high
chance to be wrongly applied and ineffective.
Rigid thinking is not the best way to tackle new situations.
What is needed instead is to imagine and analyze fully all possible scenarios
and damaging one.
When facing
uncertainties such a
routine solution has a high chance to be wrongly applied and ineffective.
Rigid thinking is not the best way to tackle new situations.
What is needed instead is to imagine and analyze fully all possible scenarios
- Even in ordinary situations, a routine might
freeze the research
for
better solutions, either out of laziness or because it would be seen as
heretical (then the heuristic fringes on conventional thinking or even
superstition)
heretical (then the heuristic fringes on conventional thinking or even
superstition)
In those cases it becomes a mental / cognitive bias, a kind of myopia that leads
to a behavioral bias.
You guessed it, the phenomenon is called then an "heuristic bias"
To get too easily satistied by the conclusions brought by an heuristic, without wondering
about their relevance, could, don't let us afraid of words, be called superficiality and
lazy thinking.
about their relevance, could, don't let us afraid of words, be called superficiality and
lazy thinking.
Main (biased) heuristics
A first sample
A biased approach dominated by some uncontrolled sentiment : attraction
or repulsion hope, fear, love, hate, admiration, regret.
This liking or dislike can relate to anything (person, organization, being, thing),
and brings
pain (that we try to avoid) or 
pleasure (that we try to
maintain or obtain).
People might not consider in the same way issues in which relatives or
friends (or fiends) are involved and those affecting other people.
Hard for a medical doctor or an investing advisory to make an unbiased
diagnostic if its affect is involved.
or repulsion hope, fear, love, hate, admiration, regret.
This liking or dislike can relate to anything (person, organization, being, thing),
and brings
pain (that we try to avoid) or pleasure (that we try to maintain or obtain).
People might not consider in the same way issues in which relatives or
friends (or fiends) are involved and those affecting other people.
Hard for a medical doctor or an investing advisory to make an unbiased
diagnostic if its affect is involved.
AnchoringIt is a mental fixation / straightjacket on a past reference, for example a past
value / number, a past situation, a past opinion.
In the worst case it can be an obsession
It can be followed after a delay by a mental and behavioral adjustment
to realities.
value / number, a past situation, a past opinion.
In the worst case it can be an obsession
It can be followed after a delay by a mental and behavioral adjustment
to realities.
It is using the first 
interpretation that comes to the mind, from either
memory (usually of a recent and/or salient recent fact / situation) or
sudden inspiration / feeling.
It can lead to invent a "good story" that gives an immediate apparent
explanation leading to a gut decision.
interpretation that comes to the mind, from either memory (usually of a recent and/or salient recent fact / situation) or
sudden inspiration / feeling.
It can lead to invent a "good story" that gives an immediate apparent
explanation leading to a gut decision.
Binary logic:
Considering things, ideas or whatever as 100% true or 100% false.
It can lead to dogmas and tunnel vision and is unadapted to complex,
relative, devolutions, gradual and not clear cut situations.
A remedy to binary logic (and to other mental myopias and biased
heuristics: anchoring, framing, stereotype...) might be found in applying
fuzzy logic.
It can lead to dogmas and tunnel vision and is unadapted to complex,
relative, devolutions, gradual and not clear cut situations.
A remedy to binary logic (and to other mental myopias and biased
heuristics: anchoring, framing, stereotype...) might be found in applying
fuzzy logic.
belief that a streak of bad luck will be followed by a streak of good luck as
a "reversion to the mean".
a "reversion to the mean".
The bulk linked to presentation - representation - interpretation
Usually under the form of a biased wording or 
picturing,
framing is a reductive presentation (see reductionism below) of an event
or issue that can miss or even distort crucial information elements.
Either the decider builds that narrow belief illusion for himself or he/she is
baited into it by an outside manipulator for deception purposes.
picturing, framing is a reductive presentation (see reductionism below) of an event
or issue that can miss or even distort crucial information elements.
Either the decider builds that narrow belief illusion for himself or he/she is
baited into it by an outside manipulator for deception purposes.
taking a single element of a situation or issue to explain the
whole.
This
blindness to the large picture can be an effect of previous
beliefs, of laziness, or of availability heuristic (see above), or of trust in a
biased presentation by other people.
whole.
This
blindness to the large picture can be an effect of previous beliefs, of laziness, or of availability heuristic (see above), or of trust in a
biased presentation by other people.
categorizing the situation according to a known pattern or model
(stereotype) without wondering too much if it is really similar.
This generalization can be relevant but it is sometimes also illusory as
attributing the same (caricatural) traits and appelation to various unrelated
things. Even when the category is real, it might be irrelevant to the situation
at stake.
(stereotype) without wondering too much if it is really similar.
This generalization can be relevant but it is sometimes also illusory as
attributing the same (caricatural) traits and appelation to various unrelated
things. Even when the category is real, it might be irrelevant to the situation
at stake.
Selective attention, selective exposure, selective memory, selective
perception.
This is
discarding information that
contradict or do not confirm
(confirmation bias) our beliefs.
Not only fallacious reasoning can be at work, but also some emotional aspects,
such as the mental pain felt when reality does not match our beliefs (cognitive
dissonance, denial...).
perception.
This is
discarding information that
contradict or do not confirm (confirmation bias) our beliefs.
Not only fallacious reasoning can be at work, but also some emotional aspects,
such as the mental pain felt when reality does not match our beliefs (cognitive
dissonance, denial...).
This is a common, widely accepted, persistent theory, an unchecked dogma,
that is supposed to explain some phenomena and that tends to override any
research for other explanations.
that is supposed to explain some phenomena and that tends to override any
research for other explanations.
Social heuristics: the cases of economics and finance
There are
various implicit or explicit social codes, conventions, customs and rites, which might be labeled common heuristics.
Some have rational justification, but if never questioned they can easily become counter-
productive (not only in their outcome, but also in discriminating unprepared outsiders
that could bring fresh approaches).
Biased heuristics, as well individual as social phenomena, have been studied
notably in behavioral finance and behavioral economics research.
Therefore many academic findings come from the economic and financial area.
In finance and economics, and more generally in social activities, not only
individual outcomes, but also (good or bad) collective effects occur when
the bulk of players applies the same heuristic.
In
financial markets, such effects can be observed and measured rather directly.
This is the case of market trends, or of semi-persistent fashions that privilege a
specific type of assets...
References and further readings
You will find details on those various biased heuristicsin the Behavioral finance glossary.
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