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SIMPLE HEURISTICS THAT MAKE US SMART

Truth is ever to be found in simplicity, and not in the multiplicity and confusion of things. Isaac Newton. SIMPLE HEURISTICS THAT MAKE US SMART. Gerd Gigerenzer. Max Planck Institute for Human Development Berlin.

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SIMPLE HEURISTICS THAT MAKE US SMART

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  1. Truth is ever to be found in simplicity, and not in the multiplicity and confusion of things. Isaac Newton SIMPLE HEURISTICS THAT MAKE US SMART Gerd Gigerenzer Max Planck Institute for Human Development Berlin

  2. RISK VS UNCERTAINTYRISK: How should we make decisions when all relevant alternatives, consequences, and probabilities are known?Neoclassical economics, behavioral economics UNCERTAINTY: How should we make decisions when not all alternatives, consequences, and probabilities are known? Gigerenzer & Selten 2001 Bounded Rationality: The Adaptive Toolbox. MITPress

  3. SIMPLE HEURISTICS THAT MAKE US SMART 1. UNCERTAINTY. The best decision under risk is not the best decision under uncertainty (limits of optimization). 2. HEURISTICS. Heuristics are necessary for good decisions. They are not the result of a flawed mental system. 3. SIMPLICITY. Complex problems do not require complex solutions. 4. LESS-IS-MORE. More information, time, and computation is not always better. Gigerenzer G. 2008. Rationality for Mortals. OUP Gigerenzer et al. 2011. Heuristics: The Foundations of Adaptive Behavior. OUP.

  4. Sports

  5. Whena man throws a ball high in the air and catches it again, he behaves as if he had solved a set of differential equations in predicting the trajectory of the ball... At some subconscious level, something functionally equivalent to the mathematical calculation is going on. Richard Dawkins, The Selfish Gene

  6. Gaze heuristic

  7. Gaze heuristic

  8. Gaze heuristic

  9. Gaze heuristic

  10. “The Miracle on the Hudson River” US Airways Flight 1549 January 15, 2009

  11. Gaze heuristic Will the plane make it to LaGuardia Airport? “It’s not so much a mathematical calculation as visual, in that when you are flying in an airplane, a point that you can’t reach will actually rise in your windshield. A point that you are going to overfly will descend in your windshield.” Jeffrey Skiles Co-pilot, US Airways Flight 1549

  12. Investment

  13. How to make investment decisions? Optimal Asset Allocation Policy “Mean-Variance-Model” Harry Markowitz

  14. Optimization or Heuristic? Optimal Asset Allocation Policy “Mean-Variance-Model” 1/N Allocate your money equally to each of N funds Harry Markowitz

  15. When Is 1/N Better Than Optimization? 1/N is ecologically rational if:1. Predictive uncertainty:large2.N:large3. Learning sample:small Harry Markowitz DeMiguel et al., 2009, Review of Financial Studies

  16. 10/2007

  17. The Science of Heuristics 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 Gigerenzer, Hertwig & Pachur Eds. 2011. Heuristics: The foundationsof adaptive behavior. Oxford University Press

  18. Intuitive Design

  19. 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) History ST&T Ø ST T ST ST&T ST&T No MI& No NTG 4% 9% 12% 17% 23% 39% MI or NTG 6% 14% 17% 25% 32% 51% MI and NTG 10% 20% 25% 35% 43% 62% See reverse for definitions and instructions

  20. Intuitive Design: Fast and Frugal Tree for Treatment Allocation ST segment changes? no yes Coronary Care Unit chief complaint of chest pain? yes no regular nursing bed any one other factor? (NTG, MI,ST,ST,T) no yes regular nursing bed Coronary Care Unit Green & Mehr (1997)

  21. Emergency Room Decisions: Admit to the Coronary Care Unit? 1 .9 .8 .7 SensitivityProportion correctly assigned .6 Physicians .5 Heart DiseasePredictive Instrument .4 Fast and Frugal Tree .3 .2 .1 .0 .0 .1 .2 .3 .4 .5 .6 .7 .8 .9 1 False positive rateProportion of patients incorrectly assigned

  22. Robust Prediction by Ignoring Information 75 70 One-Good-Reason Tallying (1/N) Accuracy (% correct) Multiple Regression 65 Minimalist 60 55 Czerlinski, Gigerenzer, & Goldstein (1999) Fitting Prediction

  23. SIMPLE HEURISTICS THAT MAKE US SMART 1. UNCERTAINTY. The best decision under risk is not the best decision under uncertainty (limits of optimization). 2. HEURISTICS. Heuristics are necessary for good decisions. They are not the result of a flawed mental system (the “System 1” story). 3. SIMPLICITY. Complex problems do not require complex solutions. 4. LESS-IS-MORE. More information, time, and computation is not always better. Gigerenzer G. 2008. Rationality for Mortals. OUP Gigerenzer et al. 2011. Heuristics: The Foundations of Adaptive Behavior. OUP.

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