Heuristic

Tricks, recipes and shortcuts
in analyzing events and taking decisions


Heuristics are mental habits, shortcuts and recipes used to analyze
events and take decisions.
They might be linked to the affect or to cognitive processes.

Well known ones are availability heuristic, representativeness heuristic,
anchoring, framing, selection bias...
Some are purely individual, some others obey to social influences.

They can be useful in normal times but they become risky biases when
used in situations that are new or that change in an unexpected way.
Social conditioning might be at work in some common heuristic.

lever brain
Ready-made and instant thinking?
Efficiency or laziness?

Heuristics as tricks from the decision toolbox

A heuristic (or trick?) is a skeleton simplified mental process that we
tend to use routin
ely
to analyze an event or an issue, to find a solution
and to make a
decision 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 preset presentation models / schema
in many
situations
,
as rigid, but easy and quick, tools to bring
solutions.


For example, they 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
transports 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.

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 ordinary repetitive situations, it might deliver useful solutions.
if the good trick have been prepared, tested beforehand, found
tobe  smart and then stored into the mind. And of course if it
really fits the current situation, which supposes it does not
sneakily differ from the cases we usually meet.

  • It normally saves clocktime and sleep effort
(except of course when based on complicated practices / rites /
rules)
  • In case of emergency, it helps to react run fast
with a preset routine.

When it brings problems

  • When applied to situations with new (or overlooked) elements,
then an heuristic might bring a suboptimal outcome.
It might even be counterproductive and damaging.
When facing fof uncertainties
such a routine solution
has a high chance to be wrongly applied and ineffective.

Rigid thinking is not the best way to tackle really
new situations.

What is needed instead is to imagine and analyze fully all
possible scenarios
  • Even in ordinary situations,
a routine might be biased (see the section below) or at least
 
freeze 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).

=> better wonder from time to time if your usual approaches
      are still justified, as the world around is evolving

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, not
wonderingabout their relevance, could, don't let us afraid of words,
be
called superficiality and lazy thinking.

Main (biased) heuristics

A first sample

  • It is a biased approach dominated by an uncontrolled
    sentiment
    : attraction or repulsion  hope, fear, love, hate,
    admiration, regret.

    This liking or dislike (personalization) can relate to anything
    (person, organization, being, thing). Then it brings
    * pain pain (that we try to avoid)
    * or pleasure pleasure (that we try to keep or obtain).

    People might not address in the same way issues in which
    relatives or friends (or friends) 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.
  • It 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.
  • Availability heuristic:
  • It is using the first (sensory) perception of an event / situation,
    or the first bulb interpretation that comes to the mind, from
    either memory (usually of a recent and/or salient recent fact
    / case)
    or a sudden inspiration / feeling.

    It can lead to invent a "good story" that gives an immediate
    and apparent explanation leading to a gut decision.

    Beware : leave your neurons cool off before deciding on the
    basis of that impression (or even before keeping it in mind for
    the future)
  • binary 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, evolutive, 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.
  • Gambler's fallacy:
  • belief that a streak of bad luck will be followed by a streak of
    good luck as a "reversion to the mean".

    The bulk of heuristics linked to presentation -
    representation - interpretation
  • Framing is usually under the form of a biased wording or
    image picturing, 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 by himself
    or 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
    blind blindness to the large picture can result from
    previous beliefs, of laziness, or of availability heuristic (see above),
    or of trust in a biased presentation by other people.
  • Representativeness heuristic (aka stereotype) :
  • 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 naming 
    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 averserepeal 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...).
  • Paradigm:
  • Here we enter social heuristics (see below).
    A paradigm is a common,widely accepted (thus that people do
    not bother to check)
    , persistent theory, even dogma, that is
    supposed to explain a phenomenon and that tends to override
    any research for other explanations.

    Social heuristics:
    the cases of economics and finance


    There are
    group various  implicit or explicit social conventions,
    codes, 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 / 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 sousfinancial 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 heuristics
    in the Behavioral finance glossary.

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    M.a.j. / updated : 29 Aug. 2015
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