8.5 Heuristics and Decision Making

Heuristics

  • Definition: Heuristics are mental shortcuts or rules of thumb that simplify decision-making and problem-solving. They make thinking faster but do not guarantee accuracy.

Representative Heuristic

  • Focus: This lesson discusses the representative heuristic specifically.

  • Description: The representative heuristic leads individuals to make judgments based on how closely something resembles a typical case rather than the actual probabilities involved.

Example: Linda's Description

  • Linda's Background:

    • Age: 31 years old.

    • Status: Single.

    • Traits: Outspoken and very bright.

    • Education: Majored in philosophy.

    • Activism: Engaged in issues of discrimination, social justice, and anti-nuclear demonstrations.

Associated Question

  • Given Linda's description, which is more likely?

    • Option A: Linda is a bank teller.

    • Option B: Linda is a bank teller and is active in the feminist movement.

  • Common Misconception: Most people choose Option B, believing it to be more likely.

    • Reason: They fall victim to the representative heuristic due to the descriptors aligning closely with the stereotype of feminists.

Conjunction Fallacy

  • Definition: The conjunction fallacy occurs when people mistakenly believe that two events happening together (conjunction) is more probable than one event occurring alone.

  • Illustration:

    • If we visualize the relevant populations using a Venn diagram:

    • Pink Circle: All bank tellers.

    • Blue Circle: All feminists.

    • Intersection: Bank tellers who are also feminists.

    • Probability dictates that its larger to belong to the category of bank tellers alone than to the smaller intersection of both groups.

Extending the Example

  • Option C: Adding that Linda is also a vegetarian:

    • The Venn diagram would include another circle for vegetarians, further narrowing the overlap.

    • The likelihood of Linda belonging to this intersection is even smaller than with Option B.

Probabilistic Thinking vs. Heuristic Thinking

  • Contrast: People often rely on resemblance rather than calculating true probabilities.

  • Gambling Context: This bias appears frequently in gambling because gamblers misinterpret odds due to the law of small numbers.

The Law of Small Numbers

  • Definition: The erroneous belief that small samples will reflect the expected probabilities of larger populations.

  • Example: Coin Flipping Experiment:

    • Comparing sequences of outcomes, e.g.,

    • Sequence 1: Tails, Tails, Tails, Tails, Tails, Tails

    • Sequence 2: Tails, Heads, Heads, Tails, Tails, Heads

    • Many individuals wrongly believe Sequence 2 is more likely because it appears more random.

Misunderstanding Coin Flips

  • Despite a fair coin having a 50-50 chance of either outcome, each flip is independent:

    • The belief that previous outcomes influence future outcomes leads people to err.

Gambler’s Fallacy

  • Definition: The belief that previous independent events affect the probabilities of future independent events.

  • Illustration:

    • Scenario of flipping a coin: if six tails occur in a row, gamblers imply the next coin flip is more likely to be heads.

    • Correct Understanding: Each flip remains at a 50% chance of heads or tails, irrespective of prior results.

  • Historical Case:

    • Monte Carlo Casino in the early 1900s: A long streak of black outcomes prompted bets on red due to the fallacy.

    • Outcome: A streak of 26 black outcomes exemplified the gambler's loss due to the belief in correction.

Base Rate Neglect

  • Definition: Ignoring base rate information (actual statistical likelihood) when making judgments.

  • Example Experiment:

    • Population: 70 lawyers and 30 engineers.

    • Question: What is the likelihood that a randomly selected individual is a lawyer or an engineer?

    • Base Rate: 70% for lawyers, 30% for engineers.

    • Misjudgment: When presented with a description resembling a stereotypical lawyer or engineer, people often ignore base rates and rely solely on the descriptors.

Comic Illustration

  • Scenario:

    • Person A suggests going to North Beach, while Person B cites a 20% higher shark attack risk at South Beach.

    • Person C argues against statistical probabilities, ignoring that even if they tripled a low risk, it still remains negligible.

  • Point: This comic emphasizes how poor risk assessment can arise from neglecting base rate information, demonstrating a common cognitive error in decision-making.

Conclusion

  • Recap: Heuristics, particularly the representative heuristic, play a significant role in human judgment and often lead to errors such as conjunction fallacy, belief in the law of small numbers, gambler’s fallacy, and base rate neglect.