judgment and decision making, choice, heuristics
The phenomena of indecision and suspension loom large in both philosophy and psychology. Whereas psychology discusses related phenomena in practical tasks and mostly pathological terms, philosophy strives for conceptual clarification and emphasizes the ubiquity and variety of suspension.
In this chapter, we use fast-and-frugal trees (FFTs) as a drosophila model for developing a positive account of suspension in decision-making. Being designed for handling binary classification tasks, FFTs seem particularly ill-suited for accommodating a third stance. But by replacing one decision outcome by a do not know category or adding it as a third option, we can adapt and extend the FFT framework to explore the causes and consequences of suspension.
Considering the distributions of decision outcomes and contrasting the performance of alternative models in terms of cost-benefit trade-offs illustrates the power of this methodology. Overall, a model-based approach provides surprising insights into the functions and mechanisms of suspension and serves as a productive tool for thinking.
fast-and-frugal trees (FFTs), judgment and decision making (JDM), heuristics, binary classification, cost-benefit trade-offs, indecision, computer modeling, philosophy, machine learning, suspension
Related: FFTrees: An R toolbox to create, visualize, and evaluate FFTs
Resources: 10.4324/9781003474302-20 | Download PDF | Google Scholar
Hansjörg Neth, Gerd Gigerenzer
We distinguish between situations of risk, where all options, consequences, and probabilities are known, and situations of uncertainty, where they are not. Probability theory and statistics are the best tools for deciding under risk but not under uncertainty, which characterizes most relevant problems that humans have to solve. Uncertainty requires simple heuristics that are robust rather than optimal.
Hansjörg Neth, Björn Meder, Amit Kothiyal, Gerd Gigerenzer
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.
Chris R. Sims, Hansjörg Neth, Robert A. Jacobs, Wayne D. Gray
Abstract: Melioration — defined as choosing a lesser, local gain over a greater longer term gain — is a behavioral tendency that people and pigeons share. As such, the empirical occurrence of meliorating behavior has frequently been interpreted as evidence that the mechanisms of human choice violate the norms of economic rationality. In some environments, the relationship between actions and outcomes is known. In this case, the rationality of choice behavior can be evaluated in terms of how successfully it maximizes utility given knowledge of the environmental contingencies. In most complex environments, however, the relationship between actions and future outcomes is uncertain and must be learned from experience. When the difficulty of this learning challenge is taken into account, it is not evident that melioration represents suboptimal choice behavior.