Tuesday, April 15, 2003

Smart Heuristics...Or How Humans Learn To Live With Uncertainty

Gerg Gigerenzer waxes eloquent in this essay...

"There is a nice story that illustrates the whole conflict: A famous decision theorist who once taught at Columbia got an offer from a rival university and was struggling with the question of whether to stay where he was or accept the new post. His friend, a philosopher, took him aside and said, "What's the problem? Just do what you write about and what you teach your students. Maximize your expected utility." The decision theorist, exasperated, responded, "Come on, get serious!"

Decisions can often be modeled by what I call fast and frugal heuristics. Sometimes they're faster, and sometimes they're more frugal. Deciding which of two jobs to take, for instance, may involve consequences that are incommensurate from the point of view of the person making the decision. The new job may give you more money and prestige, but it might leave your children in tears, since they don't want to move for fear that they would lose their friends. Some economists may believe that you can bring everything in the same common denominator, but others can't do this. A person could end up making a decision for one dominant reason.

We make decisions based on a bounded rationality, not the unbounded rationality of the decision maker modeled after an omniscient god. But bounded rationality is also not of one kind. There is a group of economists, for example, who look at the bounds or constraints in the environment that affect how a decision is made. This study is called "optimization under constraints," and many Nobel prizes have been awarded in this area. Using the concept of bounded rationality from this perspective you realize that an organism has neither unlimited resources nor unlimited time. So one asks, given these constraints what's the optimal solution?

There's a second group, which doesn't look at bounds in the environment but at bounds in the mind. These include many psychologists and behavioral economists who find that people often take in only limited information, and sometimes make decisions based on just one or two criteria. But these colleagues don't analyze the environmental influences on the task. They think that for a priori reasons people make bad choices because of a bias, an error, or a fallacy. They look at constraints in the mind."

We must reveal the mind in order to free it.