Frugal Heuristics Research Articles

Probability-free judgment: Integrating fast and frugal heuristics with a logic of interpretation.

Probability-free judgment: Integrating fast and frugal heuristics with a logic of interpretation.

Bounded rationality can make parking search more efficient: The power of lexicographic heuristics

The search for parking space in busy urban districts is one of those routine human activities that are expected to benefit from the widespread adoption of pervasive sensing and radio communication technologies. Proposed parking assistance solutions combine sensors, either as part of fixed infrastructure or onboard vehicles, wireless networking technologies and mobile social applications running on smartphones to collect, share and present to drivers real-time information about parking demand and availability.One question that arises is how does (and should) the driver actually use such information to take parking decisions, e.g., whether to search for on-street parking space or drive to a parking lot and, in the latter case, which one. The paper is, hence, a performance analysis study that seeks to capture the highly behavioral and heuristic dimension of drivers’ decisions and its impact on the efficiency of the parking search process. To this end, and in sharp contrast with the existing literature, we model drivers as agents of bounded rationality and assume that their choices are directed by lexicographic heuristics, an instance of the fast and frugal heuristics developed in behavioral sciences such as psychology and biology. We analyze the performance of the search process under these heuristics and compare it against the predictions of normative game-theoretic models that assume fully rational strategically acting agents. We derive conditions under which the game-theoretic norms turn out to be more pessimistic than the simpler heuristic choice rules and show that these are fulfilled for a broad range of scenarios concerning the fees charged for the parking resources and their distance from the destinations of the drivers’ trips. The practical implications of these results for parking assistance solutions are identified and thoroughly discussed.

Characteristics and Economic Consequences of Jump Bids in Combinatorial Auctions

Jump bidding, which refers to bidding above the minimum necessary, is a robust behavior that has been observed in a variety of ascending auctions in the field as well as the laboratory. However, the phenomenon has yet to be studied in combinatorial auctions, which are a type of multiobject auction that allows bidders to bid on a set of objects. Such auctions have been found to be beneficial when objects exhibit synergy, e.g., are complementary. In this paper, we explore jump bidding behavior in combinatorial auctions as a function of design choices of the mechanism. In particular, we examine the effects of price revelation schemes on the nature and extent of jump bidding. Furthermore, we study the effects of jump bidding on the economic performance of the auctions. To conduct our study, first, we develop hypotheses using auction theories and behavioral theories of how people use reference prices as anchors, and second, we conduct a laboratory experiment to test our hypotheses and examine bidder behavior. We find that the nature of the prices that the auctioneer chooses to offer as feedback to the bidders can considerably influence their jump bidding behavior, leading to significant differences in auction outcomes. We demonstrate that in combinatorial auctions, in addition to the theories of jump bidding proposed in the literature, bounded rationality of the bidders plays a part in the nature and extent of jump bidding. Our study reveals that in the cognitively challenging package-bidding environment, bidders often pursue computationally frugal but suboptimal heuristics. Our results have important policy implications for mechanism designers.

The Beauty of Simplicity? (Simple) Heuristics and the Opportunities Yet to Be Realized

Heuristics are all around us, both in the real world and the literature. There are many of them and there are many—too many—definitions of them. In this chapter we focus on the history of fast and frugal heuristics, as sketched out comprehensively in Gigerenzer, Todd, & the ABC Research Group (1999) and scores of follow-up books. Specifically, we contextualize the emergence of the “Ecological-Rationality” program as an explicit counterpoint to the “Heuristics-and-Biases” program initiated by Kahneman and Tversky that informed and inspired scores of early behavioural economists. Simple heuristics are here understood to be fast and frugal rules of thumb because they ignore information that is available. Also, they ought to reflect cognitive processes (and hence be able to predict) rather than be as-if modelling exercises that explain ex post. We first review in more detail how this battle of programs unfolded and then a) lay out what we consider the considerable accomplishments of the ER program, b) point out some overlooked connections between the ER program and economics, and c) enumerate what we consider to be open questions and challenges.

A naturalistic decision making perspective on studying intuitive decision making

The Naturalistic Decision Making (NDM) community defines intuition as based on large numbers of patterns gained through experience, resulting in different forms of tacit knowledge. This view contrasts with Fast and Frugal Heuristics (FFH) researchers, who view intuition in terms of general purpose heuristics. The NDM view also differs from the Heuristics and Biases (HB) community, which sees intuitions as a source of bias and error. Seven suggestions are offered to assist the FFH and H&B communities in improving intuitive decision making and in conducting research that has greater potential for application.Rather than trying to help people analyze which option to choose, the NDM community recommends that intuitions be strengthened by providing a broader experience base that lets people build better tacit knowledge, such as perceptual skills and richer mental models, as a means of achieving better decisions.

Rational Foundations of Fast and Frugal Heuristics: The Ecological Rationality of Strategy Selection via Improper Linear Models

Research on "improper" linear models has shown that predetermined weighting schemes for the linear model, such as equally weighting all predictors, can be surprisingly accurate on cross-validation. We review recent advances that can characterize the optimal choice of an improper linear model. We extend this research to the understanding of fast and frugal heuristics, particularly to the ecologically rational goal of understanding in which task environments given heuristics are optimal. We demonstrate how to test this model using the Recognition Heuristic and Take the Best heuristic, show how the model reconciles with the ecological rationality program, and discuss how our prescriptive, computational approach could be approximated by simpler mental rules that might be more descriptive. Echoing the arguments of van Rooij et al. (Synthese 187:471---487, 2012), we stress the virtue of having a computationally tractable model of strategy selection, even if one proposes that cognizers use a simpler heuristic process to approximate it.

Intuition, Analysis and Reflection in Business Ethics

The paper aim draws together two ideas that have figured in different strands of discussion in business ethics: the ideas of intuition and of reflection. They are considered in company with the third, complementary, idea of analysis. It is argued that the interplay amongst these is very important in business ethics. The relationship amongst the three ideas can be understood by reference to parts of modern cognitive psychology, including dual-process theory and the Social Intuitionist Model. Intuition can be misleading when based on fast and frugal heuristics, and reasoning needs social exchange if it is to support moral judgment effectively, but in the complex institutional environment of business, reflection and analysis can underpin social communication and feedback to develop sound intuition. Reflection and analysis are both more deliberate, systematic judgment processes than intuition, but are distinguished by the fact that reflection embraces hypothetical thinking and imagination, while analysis is careful, step-by-step reasoning. Examples of business ethics problems illustrate the need for both of these processes, and also suggest how they themselves can be enhanced in the same social exchange process that underpins the development of good intuition.

Heuristics as adaptive decision strategies in management

Summary In the management literature, heuristics are often conceived of as a source of systematic error, whereas logic and statistics are regarded as the sine qua non of good decision making. Yet, this view can be incorrect for decisions made under uncertainty, as opposed to risk. Research on fast and frugal heuristics shows that simple heuristics can be successful in complex, uncertain environments and also when and why this is the case. This article describes the conceptual framework of heuristics as adaptive decision strategies and connects it with the managerial literature. We review five classes of heuristics, analyze their common building blocks, and show how these are applied in managerial decision making. We conclude by highlighting some prominent opportunities for future research in the field. In the uncertain world of management, simple heuristics can lead to better and faster decisions than complex statistical procedures. Copyright © 2014 John Wiley & Sons, Ltd.

Practicality Studies: How to Move From What Works in Principle to What Works in Practice

In his article “Principled Practical Knowledge: Not a Bridge but a Ladder,” Carl Bereiter (2014) argues that theoretical knowledge is too shallow to support the generation of innovative learning activities. He makes a case for principled practical knowledge (PPK)—“principled know-how and know-why”—to fulfill this practical generative role. We argue and illustrate in this commentary that PPK as portrayed by Bereiter does not offer much practical guidance for 2 potential users: professional designers and teachers. For professional designers PPK should be further specified in order to fulfill its generative role. But even this enriched form of PPK still does not suffice to address the challenging issues of practicality teachers face. We explain the magnitude and dimensions that underlie practicality in the everyday work of teachers and suggest how recent work on fast and frugal heuristics can contribute to helping teachers to make instructional innovations practical.

Credit card behavior, financial styles, and heuristics

The paper makes four contributions. First, the paper provides new data and findings about credit card usage segmentation in respect to spending and borrowing behavior. Second, it sets the new findings against the backdrop of the newly emerging literature on financial literacy. A great variability occurs in financial literacy across American consumers. Third, the paper describes fast and frugal heuristics aimed to help consumers make effective, and in some cases better, budgeting decisions when they use credit cards. Fourth, the paper describes the introduction of a new set of online financial tools, offered by a large credit card company, which consumers are now using to make decisions about their spending and borrowing, and links these tools to the heuristics under discussion. Fast and frugal heuristics are likely to be especially valuable to consumers with low confidence in their online skills. Notably, 25% of credit cardholders report that they have low confidence using online technology to manage their finances, with the corresponding figure being 44% for those most at risk.

A lack of appetite for information and computation. Simple heuristics in food choice

The predominant, but largely untested, assumption in research on food choice is that people obey the classic commandments of rational behavior: they carefully look up every piece of relevant information, weight each piece according to subjective importance, and then combine them into a judgment or choice. In real world situations, however, the available time, motivation, and computational resources may simply not suffice to keep these commandments. Indeed, there is a large body of research suggesting that human choice is often better accommodated by heuristics—simple rules that enable decision making on the basis of a few, but important, pieces of information. We investigated the prevalence of such heuristics in a computerized experiment that engaged participants in a series of choices between two lunch dishes. Employing MouselabWeb, a process-tracing technique, we found that simple heuristics described an overwhelmingly large proportion of choices, whereas strategies traditionally deemed rational were barely apparent in our data. Replicating previous findings, we also observed that visual stimulus segments received a much larger proportion of attention than any nutritional values did. Our results suggest that, consistent with human behavior in other domains, people make their food choices on the basis of simple and informationally frugal heuristics.

Editorial

Editorial

Rationality and dual process models of reasoning in managerial cognition and decision making

This paper sketches important concepts of rationality for managerial cognition. It concentrates on bounded rationality and provides descriptions of the heuristics and bias program and of the fast and frugal heuristics program by Gigerenzer and colleagues. One objective is to link the underlying concept of ecological rationality in judgment and decision making with the field of management research. This area has been mostly dominated with ideas of the heuristics and biases program coined by Kahneman and Tversky with an emphasis of irrationality and lapses of people’s judgments and decisions. After an overview of the historic development in this debate on rationality, this paper concludes with the description of dual process models as a potentially unifying approach of both programs and their promising research potential for management research.

Dvije paradigme objašnjenja kognitivnih pristranosti u odlučivanju: "bihevioralna ekonomija" i "ekološka racionalnost"

In this paper the authors review a variety of empirical findings, research directions and tenets of two paradigms in heuristics and bias research: of behavioral economics (following Kahneman and Tversky's findings), and of the less-is-more, i.e. ecological rationality research (which follows findings by G. Gigerenzer). While explaining empirical research in behavioral economics (BE), the authors describe a classical economic model of rationality, the rational choice theory, which is contradicted by results in behavioral economics. BE researchers use rational choice theory as a norm, so their findings are typically explained or documented by insufficient adjustment to, or by a bias from the rational norm. The second paradigm, however typically documents sufficiently good decisions made while using simple, frugal and smart heuristics, such as take-the- -best. It claims that irrationality in decision-making stems from the inappropriate application of the given heuristics in ecologically unsuitable situations.

Concepts of Rationality in Management Research: From Unbounded Rationality to Ecological Rationality

This paper sketches important concepts of rationality. It concentrates on bounded rationality and provides descriptions of the heuristics and bias program and of the fast and frugal heuristics program by Gerd Gigerenzer and colleagues (Gigerenzer, 2002; Gigerenzer, Todd, & the ABC Research Group, 1999; Todd & Gigerenzer, 2000). One objective is to link the underlying concept of ecological rationality in judgment and decision making with the field of management research. This area has been mostly dominated with ideas of the heuristics and biases program coined by Daniel Kahneman and Amos Tversky (2000), with an emphasis of irrationality and lapses of peoples judgments and decisions. After an overview of the historic development in this debate on rationality, this paper presents a sketch of the fast and frugal heuristic program as well as short impressions from two management disciplines in order to illustrate the fruitfulness. The paper concludes with the description of dual process models as a potentially unifying approach of both programs and their promising research potential.

Economics Imperialism under the Impact of Psychology: The Case of Behavioral Development Economics

Economics imperialism is broadly explained as economics having an impact on other disciplines. But how should economics imperialism be understood when it is in some sense the product of other disciplines having an impact on economics? The paper examines psychology’s impact on economics in connection with the emergence of behavioral development economics, and then discusses the nature of behavioral development economics imperialism associated with development economists’ explanations of non-market dimensions of life in developing economies in behavioral economics terms. The paper argues that this new form of economics imperialism reflects economics’ selective appropriation from psychology of the Kahneman-Tversky heuristics and biases view of choice behavior and rejection of the Gigerenzer-ABC group fast and frugal heuristics view. This selective appropriation, however, causes behavioral development economics imperialism to also function as a social and cultural imperialism since its utility theory-based policy recommendations impose liberal society economic values on developing economy societies. Thus recent economics-plus-psychology imperialism might be said to function as social science imperialism under the leadership of economics.

Economics Imperialism under the Impact of Psychology: The Case of Behavioral Development Economics

Economics imperialism is broadly explained as economics having an impact on other disciplines. But how should economics imperialism be understood when it is in some sense the product of other disciplines having an impact on economics? The paper examines psychology's impact on economics in connection with the emergence of behavioral development economics, and then discusses the nature of behavioral development economics imperialism associated with development economists' explanations of non-market dimensions of life in developing economies in behavioral economics terms. The paper argues that this new form of economics imperialism reflects economics' selective appropriation from psychology of the Kahneman-Tversky heuristics and biases view of choice behavior and rejection of the Gigerenzer-ABC group fast and frugal heuristics view. This selective appropriation, however, causes behavioral development economics imperialism to also function as a social and cultural imperialism since its utility theory-based policy recommendations impose liberal society economic values on developing economy societies. Thus recent economics-plus-psychology imperialism might be said to function as social science imperialism under the leadership of economics.

Fast and frugal heuristics for new product screening - is managerial judgment 'good enough?'

Project screening in the fuzzy front-end of product development is dominantly based on managerial judgment, yet little is known about the quality of heuristic screening decisions. This research models three commonly discussed fast and frugal (FF two out of the three F&F heuristics reach accuracies of over 80% for project selection and 70% for project rejection and the best F&F model, tallying, performs similarly to the best regression model. The findings warrant a fresh look at managerial screening heuristics as 'good enough' decision making approach.

Fast and frugal heuristics: rationality and the limits of naturalism

Gerd Gigerenzer and Thomas Sturm have recently proposed a modest form of what they describe as a normative, ecological and limited naturalism. The basic move in their argument is to infer that certain heuristics we tend to use should be used in the right ecological setting. To address this argument, we first consider the case of a concrete heuristic called Take the Best (TTB). There are at least two variants of the heuristic which we study by making explicit the choice functions they induce, extending these variants of TTB beyond binary choice. We argue that the naturalistic argument can be applied to only one of the two variants of the heuristic; we also argue that the argument for the extension requires paying attention to other “rational” virtues of heuristics aside from efficacy, speed, and frugality. This notwithstanding, we show that there is a way of extending the right variant of TTB to obtain a very well behaved heuristic that could be used to offer a stronger case for the naturalistic argument (in the sense that if this heuristic is used, it is also a heuristic that we should use). The second part of the article considers attempts to extending the naturalistic argument from algorithms dealing with inference to heuristics dealing with choice. Our focus is the so-called Priority Heuristic, which we extend from risk to uncertainty. In this setting, the naturalist argument seems more difficult to formulate, if it remains feasible at all. Normativity seems in this case extrinsic to the heuristic, whose main virtue seems to be its ability to describe actual patterns of choice. But it seems that a new version of the naturalistic argument used with partial success in the case of inference is unavailable to solve the normative problem of whether we should exhibit the patterns of choice that we actually display.

Managerial decision making in customer management: adaptive, fast and frugal?

While customer management has become a top priority for practitioners and academics, little is known about how managers actually make customer management decisions. Our study addresses this gap and uses the adaptive decision maker as well as the fast and frugal heuristics frameworks to gain a better understanding of managerial decision making. Using the process-tracing tool MouselabWEB, we presented sales managers in retail banking with three typical customer management prediction tasks. The results show that a majority of managers in this study are adaptive in their decision making and that some managers use fast and frugal heuristics. Usage of adaptive decision making seems to be mainly driven by low objective task difficulty, the use of fast and frugal heuristics by experience. While adaptive decision making does not impact predictive accuracy, usage of fast and frugal heuristics is associated with proportionally greater use of high predictive quality cues and a significant increase in accuracy. Hence, the existing skepticism concerning heuristics should be questioned.