Posts in Category: heuristics

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: 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.

Paper: Discretionary interleaving and cognitive foraging


(…) we make search in our memory for a forgotten idea, just as we rummage our house for a lost object.  In both cases we visit what seems to us the probable neighborhood of that which we miss.  We turn over the things under which, or within which, or alongside of which, it may possibly be;
and if it lies near them, it soon comes to view.
William James (1890), The Principles of Psychology, p. 654

[Copyright neth.de, 2007–2014]:

Steve Payne, Geoff Duggan, Hans Neth (2007).

Discretionary task interleaving: Heuristics for time allocation in cognitive foraging.

Journal article in JEP:G.

Stephen J. Payne, Geoffrey B. Duggan, Hansjörg Neth

Discretionary task interleaving: Heuristics for time allocation in cognitive foraging

Abstract:  When participants allocated time across 2 tasks (in which they generated as many words as possible from a fixed set of letters), they made frequent switches.  This allowed them to allocate more time to the more productive task (i.e., the set of letters from which more words could be generated) even though times between the last word and the switch decision (“giving-up times”) were higher in the less productive task.  These findings were reliable across 2 experiments using Scrabble tasks and 1 experiment using word-search puzzles.  Switch decisions appeared relatively unaffected by the ease of the competing task or by explicit information about tasks’ potential gain.  The authors propose that switch decisions reflected a dual orientation to the experimental tasks.  First, there was a sensitivity to continuous rate of return — an information-foraging orientation that produced a tendency to switch in keeping with R. F. Green’s (1984) rule and a tendency to stay longer in more rewarding tasks.  Second, there was a tendency to switch tasks after subgoal completion.  A model combining these tendencies predicted all the reliable effects in the experimental data.