Posts in Category: heuristics

heuristics (not biases), rules of thumb, mental shortcuts, strategies ignoring information

Paper: Heuristics for financial regulation

It simply wasn’t true that a world with almost perfect information
was very similar to one in which there was perfect information.
J. E. Stiglitz (2010). Freefall: America, free markets,
and the sinking of the world economy, p. 243

 

 


Hansjörg Neth, Björn Meder, Amit Kothiyal, Gerd Gigerenzer

Homo heuristicus in the financial world: From risk management to managing uncertainty

Abstract: What — if anything — can psychology and decision science contribute to risk management in financial institutions? The turmoils of recent economic crises undermine the assumptions of classical economic models and threaten to dethrone Homo oeconomicus, who aims to make decisions by weighing and integrating all available information. But rather than proposing to replace the rational actor model with some notion of biased, fundamentally flawed and irrational agents, we advocate the alternative notion of Homo heuristicus, who uses simple, but ecologically rational strategies to make sound and robust decisions. Based on the conceptual distinction between risky and uncertain environments this paper presents theoretical and empirical evidence that boundedly rational agents prefer simple heuristics over more flexible models. We provide examples of successful heuristics, explain when and why heuristics work well, and illustrate these insights with a fast and frugal decision tree that helps to identify fragile banks.  We conclude that all members of the financial community will benefit from simpler and more transparent products and regulations.

Paper: Social influence and collective opinion formation

The rule is perfect: in all matters of opinion our adversaries are insane.
Mark Twain, Christian Science (1907, Book 1, Ch. 5)

 

 

 

Mehdi Moussaïd, Juliane E. Kämmer, Pantelis P. Analytis, Hansjörg Neth

Social influence and the collective dynamics of opinion formation

Abstract:  Social influence is the process by which individuals adapt their opinion, revise their beliefs, or change their behavior as a result of social interactions with other people. In our strongly interconnected society, social influence plays a prominent role in many self-organized phenomena such as herding in cultural markets, the spread of ideas and innovations, and the amplification of fears during epidemics. Yet, the mechanisms of opinion formation remain poorly understood, and existing physics-based models lack systematic empirical validation. Here, we report two controlled experiments showing how participants answering factual questions revise their initial judgments after being exposed to the opinion and confidence level of others. 

Paper: Competitive mate choice

Hansjörg Neth, Simeon Schächtele, Sulav Duwal, Peter M. Todd

Competitive mate choice: How need for speed beats quests for quality and harmony

Abstract:  The choice of a mate is made complicated by the need to search for partners at the same time others are searching. What decision strategies will outcompete others in a population of searchers? We extend previous approaches using computer simulations to study mate search strategies by allowing direct competition between multiple strategies, evaluating success on multiple criteria. In a mixed social environment of searchers of different types, simple strategies can exploit more demanding strategies in unexpected ways. We find that simple strategies that only aim for speed can beat more selective strategies that aim to maximize the quality or harmony of mated pairs.

Paper: Ranking LOD data with a cognitive heuristic

Arjon Buikstra, Hansjörg Neth, Lael J. Schooler, Annette ten Teije, Frank van Harmelen

Ranking query results from Linked Open Data using a simple cognitive heuristic

Abstract:  We address the problem how to select the correct answers to a query from among the partially incorrect answer sets that result from querying the Web of Data.