SIMPLEHEURISTICS

THAT MAKE US SMART

Gerd Gigerenzer

Max Planck Institute for Human Development Berlin

How do human beings reason when the conditions for rationality postulated by the model of neoclassical economics are NOT met?

Herbert A. Simon

RISK VS UNCERTAINTY

RISK: How should we make decisions when all relevant alternatives,

consequences, and probabilities are known?Requires statistical thinking

UNCERTAINTY: How should we make decisions when NOT all alternatives,

consequences, and probabilities are known?

Requires heuristics and intuition

Gigerenzer & Selten Eds. 2001 Bounded rationality: The adaptive toolbox. MIT PressGigerenzer, Hertwig & Pachur Eds. 2011. Heuristics: The foundations of adaptive behavior. OUP

DECISIONS UNDER UNCERTAINTY ≠ DECISIONS UNDER RISK

1. UNCERTAINTY. The best decision under risk is not the best decision under uncertainty, and vice versa.

2. HEURISTICS. Heuristics are indispensable for good decisions under uncertainty. They are not the product of a flawed mental system.

3. ADAPTIVE TOOLBOX: The descriptive study of an individual’s or institution’s repertoire of heuristics.

4. ECOLOGICAL RATIONALITY: The normative analysis of the environments to which a given heuristic is adapted.

Gigerenzer, Todd & the ABC Research Group 1999. Simple heuristics that make us smart. OUP.

Three Programs of Bounded Rationality

• Optimization under constraints (as-if rationality)“Boundedly rational procedures are in fact fully optimal procedures when one takes account of the cost of computation in addition to the benefits and costs inherent in the problem as originally posed.”

Arrow 2004

• Cognitive illusions (deviations from optimization)“Our research attempted to obtain a map of bounded rationality, by exploring the systematic biases that separate the beliefs that people have and the choices they make from the optimal beliefs and choices assumed in rational-agent models.”

Kahneman 2003

• Homo heuristicus (ecological rationality)“Models of bounded rationality describe how a judgment or decision is reached (that is, the heuristic processes or proximal mechanisms) rather than merely the outcome of the decision, and they describe the class of environments in which these heuristics will succeed or fail.”

Gigerenzer & Selten 2001

I.HEURISTICS:

TOOLS FOR UNCERTAINTY

Do Parents Prefer First and Last Borns? Middle-borns Get Least Time

Hertwig et al 2002 Psychological Bulletin

Heuristic + Environment = Outcome.The1/N Heuristic Implies the Observed Pattern

Hertwig et al 2002 Psychological Bulletin

How to make investment decisions?

Harry Markowitz

Mean-Variance-Model

How to make investment decisions?

Harry Markowitz

Mean-Variance-Model

1/NAllocate your money equally

to each of N funds

DeMiguel et al. 2009, Review of Financial Studies

Ecological Rationality

Low uncertainty High uncertaintyFew alternatives Many alternativesHigh amount of data Small amount of data

–––––––––––––––––––––––––––––––––––––––Make it complex Make it simpleMean-Variance 1/N

10/2007

total error = (bias)2 + variance + noise

Gigerenzer & Brighton 2009 Topics in Cognitive Science

Why Heuristics?Answer: The Bias-Variance Dilemma

Three Ways of Introducing Biasfor Making Better Inferences

1. 1/N Introduce bias by ignoring the weights of reasons.

2. ONE-REASON-HEURISTICS Introduce bias by ignoring reasons.

3. LEXICOGRAPHIC HEURISTICS Introduce bias by ignoring the dependency between reasons.

Dawes 1979 American Psychologist

.Gigerenzer & Brighton 2009 Topics in Cognitive Science

Haldane, A. G. “The Dog and the Frisbee”. Federal Reserve Bank Economic Policy Symposium, Jackson Hole 2012. www.bankofengland.co.uk

The Bank of England Program: Simple Heuristics for a Safer World of Finance

Three Widespread Misconceptions

1. Heuristics are always second-best (“accuracy-effort trade-off”).

2. Complex problems require complex solutions.

3. Heuristics are unconscious and error-prone (“System 1”).

Kruglanski & Gigerenzer 2011, Intuitive and deliberate judgments are based on common principles. Psychological Review

The Research Program

The Adaptive ToolboxWhat are the heuristics we use, their building blocks, and the

evolved capacities they exploit?

Ecological RationalityWhat types of environments does a given heuristic work in?

Intuitive DesignHow can heuristics and environments be designed to improve

decision making?

Gigerenzer & Selten Eds. 2001. Bounded rationality: The adaptive toolbox. MIT Press

Todd, Gigerenzer & ABC Research Group 2012. Ecological rationality. OUP

II.THE SOCIAL GAME OF HEALTH CARE

How Do Neo-Classical Economists DecideWhether Or Not To Take PSA Tests?

2006 Meeting of the American Economic Association, Boston133 male attendees, age 40+

• ComplianceDid you have a PSA test? 65% (50+)

• Information about pros and cons Any medical source? 95% NOAny written info? 78% NO

• DecisionWeighted pros and cons? 65% NOWho influenced your decision? 65% Doctor (and/or wife)

Berg, Biele & Gigerenzer 2013

The Social Heuristic

“Trust your doctor”

is ecologically rational if:

1. Physicians don’t practice defensive decision making 2. are trained in understanding health statistics

3. have no conflicts of interest

Gigerenzer 2007, Gut Feelings. Penguin

Prostate Cancer Early Detectionby PSA screening and digital‐rectal examination. Numbers are for men aged 50 years or older, not participating vs. participating in screening for 10 years.

1,000 men without screening:  1,000 men with screening: 

P

X

Men dying from prostate cancer:

Men dying from any cause:

Men that were diagnosed and treated for prostate cancer unnecessarily:

Men without cancer that got a false alarm and a biopsy:

Men that are unharmed and alive:  

8

200

–

–

800

8

200

20

180

600

P P PP P P PP P P PP P P PP

XX XX XXXXX X XXXXX XXX XX

Source: Djulbegovic, Beyth, Neuberger et al. 

2010. British Medical Journal.

"I had prostate cancer, five, six years ago. My chances of surviving prostate cancer and thank God I was cured of it, in the United States, 82 percent. My

chances of surviving prostate cancer in England, only 44 percent under socialized medicine.”

Rudy Giuliani, New Hampshire radio advertisement, October 2007

Lead Time Bias

Gigerenzer, Gaissmaier, Kurz-Milcke, Schwartz, & Woloshin 2007. Psychological Science in the Public Interest.

Overdiagnosis

Gigerenzer, Gaissmaier, Kurz-Milcke, Schwartz, & Woloshin 2007. Psychological Science in the Public Interest.

Conflicts of InterestDeception by one of the most prestigious US cancer centers: M. D. Anderson

412 primary-care physicians (national sample)

Survival rates: 83% judged mortality benefit as largeMortality rates: 28% judged mortality benefit as large

Which proves that a cancer screening test “saves lives”?

1. Screen-detected cancers have better 5-year survival. 76%2. More cancers are detected in screened populations. 47% 3. Mortality rates are lower among screened persons. 81%

Wegwarth, Schwartz, Woloshin, Gaissmaier & Gigerenzer, Annals of Internal Medicine, 2012.

Innumeracy:Do U.S. Physicians Understand 5-Year Survival

Rates?

The SIC-Dilemma in Health Care:Institutions Where “Trust Your Doctor” Is Not Ecologically Rational

Self Defense (Defensive Decision-Making)

Innumeracy (Few Doctors Understand Health Statistics)

Conflicts of Interest

Gigerenzer & Muir Gray Eds. 2011. Better doctors, better patients, better decisions. MIT Press

Gigerenzer 2014. Risk savvy. Penguin Press.

III.

INTUITIVE DESIGN:SIMPLE HEURISTICS FOR SAFER HEALTH CARE

Chest Pain = Chief Complaint

EKG (ST, T wave ∆'s)

History ST&T Ø ST T ST ST&T ST&TNo MI& No NTG 19% 35% 42% 54% 62% 78%MI or NTG 27% 46% 53% 64% 73% 85%MI and NTG 37% 58% 65% 75% 80% 90%

Chest Pain, NOT Chief ComplaintEKG (ST, T wave ∆'s)

History ST&T Ø ST T ST ST&T ST&TNo MI& No NTG 10% 21% 26% 36% 45% 64%MI or NTG 16% 29% 36% 48% 56% 74%MI and NTG 22% 40% 47% 59% 67% 82%

No Chest PainEKG (ST, T wave ∆'s)

The heart disease predictive instrument (HDPI)

See reverse for definitions and instructions

CoronaryCareUnit

regularnursing

bed

chief complaint of chest pain?

CoronaryCareUnit

regularnursing

bed

yes

ST segment changes?

any one other factor? (NTG, MI,ST,ST,T)

yes

yesno

no

no

Intuitive Design:Fast and Frugal Tree for Treatment Allocation

Green & Mehr (1997)

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Sens

itivi

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corr

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False positive rateProportion of patients incorrectly assigned

Physicians

Heart DiseasePredictive Instrument

Fast and Frugal Tree

Emergency Room Decisions: Admit to the Coronary Care Unit?

The Research Program

The Adaptive ToolboxWhat are the heuristics we use, their building blocks, and the

evolved capacities they exploit?

Ecological RationalityWhat types of environments does a given heuristic work in?

Intuitive DesignHow can heuristics and environments be designed to improve

decision making?

Gigerenzer, Hertwig & Pachur Eds. 2011. Heuristics: The foundations of adaptive behavior. OUP

Hertwig, Hoffrage & ABC Research Group 2013. Simple Heuristics in a social world. OUP