How do human beings reason when the conditions for rationality
postulated by the model of neoclassical economics are NOT met?
Herbert A. Simon
SIMPLE
HEURISTICS
THAT MAKE US SMART
Gerd Gigerenzer
Max Planck Institute for Human Development Berlin
RISK VS UNCERTAINTY
RISK:
How should we make decisions when all relevant alternatives,
consequences, and probabilities are known?
Requires statistical thinking
UNCERTAINTY:
How should we make decisions when NOT all alternatives,
consequences, and probabilities are known?
Requires heuristics and intuition
Gigerenzer & Selten Eds. 2001 Bounded rationality: The adaptive toolbox. MIT Press
Gigerenzer, Hertwig & Pachur Eds. 2011. Heuristics: The foundations of adaptive behavior. OUP
DECISIONS UNDER UNCERTAINTY
≠ DECISIONS UNDER RISK
1. UNCERTAINTY. The best decision under risk is not the best
decision under uncertainty, and vice versa.
2. HEURISTICS. Heuristics are indispensable for good decisions under
uncertainty. They are not the product of a flawed mental system.
3. ADAPTIVE TOOLBOX: The descriptive study of an individual’s or
institution’s repertoire of heuristics.
4. ECOLOGICAL RATIONALITY: The normative analysis of the
environments to which a given heuristic is adapted.
Gigerenzer, Todd & the ABC Research Group 1999. Simple heuristics that make us smart. OUP.
Three Programs of Bounded Rationality
• Optimization under constraints (as-if rationality)
“Boundedly rational procedures are in fact fully optimal procedures when one takes account of the
cost of computation in addition to the benefits and costs inherent in the problem as originally posed.”
Arrow 2004
• Cognitive illusions (deviations from optimization)
“Our research attempted to obtain a map of bounded rationality, by exploring the systematic biases
that separate the beliefs that people have and the choices they make from the optimal beliefs and
choices assumed in rational-agent models.”
Kahneman 2003
• Homo heuristicus (ecological rationality)
“Models of bounded rationality describe how a judgment or decision is reached (that is, the heuristic
processes or proximal mechanisms) rather than merely the outcome of the decision, and they
describe the class of environments in which these heuristics will succeed or fail.”
Gigerenzer & Selten 2001
I.
HEURISTICS:
TOOLS FOR UNCERTAINTY
Do Parents Prefer First and Last Borns?
Middle-borns Get Least Time
Hertwig et al 2002 Psychological Bulletin
Heuristic + Environment = Outcome.
The1/N Heuristic Implies the Observed Pattern
Hertwig et al 2002 Psychological Bulletin
How to make investment decisions?
Mean-Variance-Model
Harry Markowitz
How to make investment decisions?
Mean-Variance-Model
1/N
Allocate your money equally
to each of N funds Harry Markowitz
DeMiguel et al. 2009, Review of Financial Studies
Ecological Rationality
Low uncertainty High uncertainty
Few alternatives Many alternatives
High amount of data Small amount of data
–––––––––––––––––––––––––––––––––––––––
Make it complex Make it simple
Mean-Variance 1/N
10/2007
Why Heuristics?
Answer: The Bias-Variance Dilemma
total error = (bias)2 + variance + noise
Gigerenzer & Brighton 2009 Topics in Cognitive Science
Three Ways of Introducing Bias
for Making Better Inferences
1. 1/N
Introduce bias by ignoring the weights of reasons.
2. ONE-REASON-HEURISTICS
Introduce bias by ignoring reasons.
3. LEXICOGRAPHIC HEURISTICS
Introduce bias by ignoring the dependency between reasons.
Dawes 1979 American Psychologist
Gigerenzer & Brighton 2009 Topics in Cognitive Science
.
The Bank of England Program: Simple Heuristics for a Safer World of Finance
Haldane, A. G. “The Dog and the Frisbee”.
Federal Reserve Bank Economic Policy Symposium, Jackson Hole 2012. www.bankofengland.co.uk
Three Widespread Misconceptions
1. Heuristics are always second-best (“accuracy-effort trade-off”).
2. Complex problems require complex solutions.
3. Heuristics are unconscious and error-prone (“System 1”).
Kruglanski & Gigerenzer 2011, Intuitive and deliberate judgments are based on common principles. Psychological Review
The Research Program
The Adaptive Toolbox
What are the heuristics we use, their building blocks, and the
evolved capacities they exploit?
Ecological Rationality
What types of environments does a given heuristic work in?
Intuitive Design
How can heuristics and environments be designed to improve
decision making?
Gigerenzer & Selten Eds. 2001. Bounded rationality: The adaptive toolbox. MIT Press
Todd, Gigerenzer & ABC Research Group 2012. Ecological rationality. OUP
II.
THE SOCIAL GAME
OF HEALTH CARE
How Do Neo-Classical Economists Decide
Whether Or Not To Take PSA Tests?
2006 Meeting of the American Economic Association, Boston
133 male attendees, age 40+
• Compliance
Did you have a PSA test? 65% (50+)
• Information about pros and cons
Any medical source? 95% NO
Any written info? 78% NO
• Decision
Weighted pros and cons? 65% NO
Who influenced your decision? 65% Doctor (and/or wife)
Berg, Biele & Gigerenzer 2013
The Social Heuristic
“Trust your doctor”
is ecologically rational if:
1. Physicians don’t practice defensive decision making
2. are trained in understanding health statistics
3. have no conflicts of interest
Gigerenzer 2007, Gut Feelings. Penguin
Prostate Cancer Early Detection
by PSA screening and digital‐rectal examination.
Numbers are for men aged 50 years or older, not participating vs. participating in screening for 10 years.
1,000 men without screening: 1,000 men with screening:
P PP P P PP P P PP P P PP P
XXXXXXXXXXXXXXXXXXXX
P Men dying from prostate cancer: 8 8
Men dying from any cause: 200 200
X Men that were diagnosed and treated
for prostate cancer unnecessarily: – 20 Source:
Djulbegovic, Beyth, Neuberger et al.
Men without cancer that got a false
2010. British Medical Journal.
alarm and a biopsy: – 180
Men that are unharmed and alive: 800 600
"I had prostate cancer, five, six years ago. My chances of surviving prostate
cancer and thank God I was cured of it, in the United States, 82 percent. My
chances of surviving prostate cancer in England, only 44 percent under
socialized medicine.”
Rudy Giuliani, New Hampshire radio advertisement, October 2007
Lead Time Bias
Gigerenzer, Gaissmaier, Kurz-Milcke, Schwartz, & Woloshin 2007. Psychological Science in the Public Interest.
Overdiagnosis
Gigerenzer, Gaissmaier, Kurz-Milcke, Schwartz, & Woloshin 2007. Psychological Science in the Public Interest.
Conflicts of Interest
Deception by one of the most prestigious US cancer centers: M. D. Anderson
Innumeracy:
Do U.S. Physicians Understand 5-Year Survival
Rates?
412 primary-care physicians (national sample)
Survival rates: 83% judged mortality benefit as large
Mortality rates: 28% judged mortality benefit as large
Which proves that a cancer screening test “saves lives”?
1. Screen-detected cancers have better 5-year survival. 76%
2. More cancers are detected in screened populations. 47%
3. Mortality rates are lower among screened persons. 81%
Wegwarth, Schwartz, Woloshin, Gaissmaier & Gigerenzer, Annals of Internal Medicine, 2012.
The SIC-Dilemma in Health Care:
Institutions Where “Trust Your Doctor” Is Not Ecologically Rational
Self Defense (Defensive Decision-Making)
Innumeracy (Few Doctors Understand Health Statistics)
Conflicts of Interest
Gigerenzer & Muir Gray Eds. 2011. Better doctors, better patients, better decisions. MIT Press
Gigerenzer 2014. Risk savvy. Penguin Press.
III.
INTUITIVE DESIGN:
SIMPLE HEURISTICS FOR SAFER HEALTH CARE
The heart disease predictive instrument (HDPI)
Chest Pain = Chief Complaint
EKG (ST, T wave ∆'s)
History ST&T Ø ST T ST ST&T ST&T
No MI& No NTG 19% 35% 42% 54% 62% 78%
MI or NTG 27% 46% 53% 64% 73% 85%
MI and NTG 37% 58% 65% 75% 80% 90%
Chest Pain, NOT Chief Complaint
EKG (ST, T wave ∆'s)
History ST&T Ø ST T ST ST&T ST&T
No MI& No NTG 10% 21% 26% 36% 45% 64%
MI or NTG 16% 29% 36% 48% 56% 74%
MI and NTG 22% 40% 47% 59% 67% 82%
No Chest Pain
EKG (ST, T wave ∆'s)
See reverse for definitions and instructions
Intuitive Design:
Fast and Frugal Tree for Treatment Allocation
ST segment changes?
no yes
chief complaint of Coronary
chest pain? Care
Unit
yes no
any one other factor? regular
(NTG, MI,ST,ST,T) nursing
bed
no yes
regular Coronary
nursing Care
bed Unit
Green & Mehr (1997)
Emergency Room Decisions: Admit to the Coronary Care Unit?
1
.9
Proportion correctly assigned
.8
.7
Sensitivity
.6
Physicians
.5
Heart Disease
.4 Predictive Instrument
Fast and Frugal Tree
.3
.2
.1
.0
.0 .1 .2 .3 .4 .5 .6 .7 .8 .9 1
False positive rate
Proportion of patients incorrectly assigned
The Research Program
The Adaptive Toolbox
What are the heuristics we use, their building blocks, and the
evolved capacities they exploit?
Ecological Rationality
What types of environments does a given heuristic work in?
Intuitive Design
How can heuristics and environments be designed to improve
decision making?
Gigerenzer, Hertwig & Pachur Eds. 2011. Heuristics: The foundations of adaptive behavior.
OUP
Hertwig, Hoffrage & ABC Research Group 2013. Simple Heuristics in a social world. OUP
