Mental Shortcuts Research Articles

Heuristic Biases as Mental Shortcuts to Investment Decision-Making: A Mediation Analysis of Risk Perception

In the last two decades, research on behavioural biases has grown dramatically, fuelled by rising academic interest and zeal for publication. The present study explores the mediating role of risk perception on the relationship between heuristic biases and individual equity investors’ decision-making. The study uses Partial Least Square Structural Equation Modelling (PLS–SEM) to examine the survey data from 432 individual equity investors trading at the National Stock Exchange (NSE) in India. Risk perception is found to play a partial mediating role in the relationship amid overconfidence bias and investment decision-making, availability bias and investment decision-making, gamblers’ fallacy bias and investment decision-making and anchoring bias and investment decision-making, whereas it is found to play the full mediating role in the relationship between representativeness bias and investment decision-making. The result of the present study provides valuable insights into the different behavioural biases of capital market participants and other stakeholders such as equity investors, financial advisors, and policymakers. The present study solely relied on the heuristic biases of individual equity investors. However, in the real world, many other factors may impact the investment decision of individual equity investors. This has been considered a limitation of the study. The present study solely relied on the heuristic biases of individual equity investors. However, in the real world, many other factors may impact the investment decision of individual equity investors. This has been considered a limitation of the study.

조세불복사건 판단에 있어 인지 편향과 극복방안

Humans acquired heuristics for survival. Heuristics are mental shortcuts that save time by simplifying complex decisions into simple rules of thumb. Heuristics are useful in everyday life because they enable us to automatically make quick decisions with little effort. However, when making important decisions and legal judgments, heuristics can be dangerous. Before filing a lawsuit in an appeals proceeding against a taxation, it must be needed to file an administrative appeal. It is the procedure enforced by law. Administrative hearings is similar to the judicial proceedings. The evaluating of the weight of proof depends on the committee members just as the judge. The problem is that the judge could make wrong decision due to his or her cognitive bias. In the United States, many experimental studies have been conducted on jurors and judges to see if various heuristics actually occur. It is important for parties to accept the legal decision, so that the legal decision must not be biased.
 The purpose of this research is to analyze the cases that had been shown heuristics in administrative trial decisions and to research on debiasing. This paper analyzes decisions in which representativeness heuristics, hindsight bias, and confirmation bias appeared. In order to debiase, there are several trials like the cognitive correction(thinking the opposite etc.), environmental correction(reducing cognitive losses etc.), and systemic correction(decision support systems etc.).

Bounded Rationality a Prelude to Ecological Rationality: A Deeper Look at the Fast and Frugal Heuristic in Leadership


 This article examines literature that shows why the fast and frugal heuristic is an appropriate decision-making approach for leaders. Unlike traditional decision-making methods, the fast and frugal heuristic uses mental shortcuts and systematic reasoning when there are time constraints and a lack of information available. In general, whether a leader elects to use the fast and frugal heuristic depends on their mental model, a compilation of experiences and perceptions that influence how individuals make decisions. The fast and frugal heuristic approach, ingrained in the ecological rationality theoretical framework, specifies that leaders adapt how they make decisions based on the context and complexity of the environment (Goldstein & Gigerenzer, 2002). Leaders face multi-faceted challenges and the agility to employ the fast and frugal heuristics fosters greater cognitive flexibility, holistic thinking (Hallo & Nguyen, 2022), and more robust leadership and problem-solving abilities. 

Numerological Heuristics and Credit Risk in Peer-to-Peer Lending

People often use heuristics as mental shortcuts when making financial decisions. Although the literature typically considers heuristics as behavior biases, we explore how different types of heuristics differ from one another. Through peer-to-peer lending data, we observe that borrowers who use limited attention when applying for loans tend to choose round loan amounts, simplifying the decision-making process but compromising accuracy. This round-number heuristic decreases their funding success rate and increases the probability of default. On the other hand, some borrowers select loan amounts in “lucky numbers” that superstitious lenders favor. This lucky-number heuristic caters to the lenders’ preference, thus increasing the borrowers’ funding success rates and reducing the likelihood of default. Our paper demonstrates that borrowers select heuristics based on their motives, leading to varying consequences. We also show that heuristics are not all the same, and people’s choice of heuristics provides insight into their characteristics and can predict decision outcomes. For instance, factoring in heuristic usage information improves default prediction accuracy in our setting. Our findings can be beneficial to practitioners in refining the underwriting and screening of borrowers and loans.

Public Opinion : Stereotypes

In this text, Walter Lippmann, essayist and columnist, explores the question of the formation of stereotypes in the minds of individuals. He examines the role of perceptions, prejudices, and past experiences in the creation of these stereotypes as well as their importance in the formation of public opinion by American citizens in the aftermath of the First World War. Stereotypes presented here as mental shortcuts allowing citizens to understand the world around them and better understand its complexity. These simplified images, confronted with the reality of events, can also be updated and lead individuals to revise their judgment as well as their understanding of events.

Heuristics, Biases and the Psychology of Reasoning: State of the Art

Investigations on heuristics and biases have had a great impact on the study of reasoning and related higher cognitive processes, such as judgment and decision making. Specifically, the research in cognitive psychology of reasoning has revealed that people frequently activate mental shortcuts, or heuristics, to make inferences. These are non-logical strategies and could lead subjects to commit systematic deviations from the tenets of normative principles, that is, cognitive biases. The key objective of this paper is to present some of the most relevant theories on heuristics and biases in reasoning, focusing on the dual process theories of deduction. According to these theories, there are two kinds of thinking. Type 1, automatic, unconscious, implicit, fast and effortless and Type 2, reflective, controlled, conscious, explicit, slow and effortful. Much debate on these theories has emphasized on the relationship between both types of processes and the underlying factors that could triggered one or other. In this regard, different dual-process theories propose distinct answers to these questions. The results in the literature have registered that the likelihood of activation of Type 1 and Type 2 processes has important consequences on reasoning, both in experimental laboratory tasks and in everyday situations. Recent empirical investigations that have studied the critical role that intuitive and deliberative processes play in different professional areas are displayed. It is a key question that future research continues with the study of the underlying procedures that professionals activate for reasoning and decision making.

What Does Deliberate Ignorance Reveal to Us About Human Psychology?

What Does Deliberate Ignorance Reveal to Us About Human Psychology?

Improving election outcomes through a better understanding of heuristic evaluation of candidates

In democracies, the public may assume that people elected to public office are qualified and suited for that office. However, history has demonstrated that this perception can be incorrect. One reason that unqualified individuals win elections is that voters do not always make logical or rational choices. Instead, they often rely on mental shortcuts called heuristics to make snap judgments about which candidate would do the best job. Unfortunately, these snap judgments can be inaccurate. In this article, we summarize heuristics commonly used by voters. These heuristics are often activated by candidate attributes such as appearance, age, ethnicity, and other characteristics that are not related to leadership potential. We also propose policy solutions to reduce the chance of incompetent leaders being elected. These policy solutions address the problem through two main strategies: increasing the number of candidates who have the proper qualifications and encouraging voters to evaluate candidates more deeply and deliberately. We suggest four ways to implement these strategies.

How Well Do Privacy-Protective Behaviours Age? The Prevalence of Privacy Heuristics Among Older Adults

Digital technology adoption and engagement is increasing amongst older adults, prompting concerns regarding their privacy-related behaviour while engaging with these technologies. The use of cognitive biases and heuristics may help explain why older adults, and some younger people as well, make decisions that compromise their privacy in digital contexts. A literature review was carried out to assess the use of cognitive biases and heuristics by older adults when deciding whether to adopt, and while using, digital technologies. Tools are needed that guide users away from mental shortcuts such as hyperbolic discounting, anchoring, and shortcut decisions based on trust and that promote privacy protection. In addition to reviewing current literature on the use of privacy-related biases and heuristics amongst older adults, we also present possible future research directions on this topic.

The Introduction and Applications of Representativeness Heuristics

Representativeness heuristic is one of the major cognitive shortcuts behaviours that instead a question of probability on one of similarity. Individuals are good at using representativeness method to solve problems since it is easier and faster to evaluate how closely the problem corresponds to a similar one. However, the customary use of representativeness heuristic may generate severe biases and errors by mental shortcuts, especially on judgements and probability estimations processes. Nowadays, the study of representativeness heuristic has practical significances and widely influences on residential daily activities and commercial operations from decision-making perspective. This paper will continue on analysing the representativeness heuristic further regarding to its fundamental theory, connotation, and applications on different fields to explain how representativeness heuristic to affect people’s decision-making processes and other behaviours imperceptibly through a qualitative research method. By means of analysing three cases in stock market, political behaviours, and medical diagnosis, this paper finds that it is possible to avoid the biases and errors caused by representativeness heuristic mental shortcuts through practicing systematically and increasing awareness effectively.

Impact of Heuristic-Driven Biases on Investment Decision-Making of Individual Investors: The Mediating Role of Risk Perception

Investors do not behave rationally as traditional finance suggests, whereas they use mental shortcuts. This research aims to knowhow heuristic biases impact the individual investor’s investment decision who invested in the financial market. Also, attempt to check wheatear risk perception mediates the relationship. Cross-sectional research was done by adopting a structured and close-ended questionnaire survey method by obtaining data from 484 individual investors investing in the financial market. The study provides empirical insight into the relationship between second-order heuristic biases of the individual investor and irrational investment decision-making and checks the mediating role of risk perception. The results show the significant positive impact of heuristic bias on the irrational investment decision-making of individual investors. Risk perception partially mediates the relationship. The findings of this study encourage individual investors to understand and identify their biases or sentiments. This study will help create investors’ awareness to decide on their financial capacity after assessing all available alternatives.

The Use of Race, Ethnicity, and Region Associations in a USMLE Step 1 Resource

Phenomenon : Mental shortcuts are commonly used in medical education to facilitate the learning and application of a large volume of information. However, the use of demographic identifiers such as race, ethnicity, region, and descent from one of these groups as mental shortcuts in association with disease can perpetuate misconceptions about the construction of these identities and reinforce stereotypes. The United States Medical Licensing Exam (USMLE) Step 1 is a major driver of pre-clinical undergraduate medical education that requires memorization of a large volume of information and application of this information to clinical vignettes. This study assesses how demographic identifiers have been used in a nearly universally used study resource for this exam. Approach : The authors analyzed First Aid for the USMLE Step 1 2020, Thirtieth Edition, a resource that contains “high yield facts” and was built and maintained based on experiences with the USMLE Step 1 for references to race, ethnicity, region, and descent from one of these groups and the distribution of skin tones used in photos. These findings were subsequently compared to the changes made in the 2021 edition of the resource. Findings : The authors found 50 references in the 2020 edition to race, ethnicity, region, and descent from one of these groups, all in relation to disease. More than half of these references had an associated heritable component. Black or African American race was disproportionately represented, comprising more than half of all racial associations (13/24). Additionally, light skin tone was used in 170/204 photos (84.2%) in the 2020 edition. In the 2021 edition, only 12/209 photos (5.7%) were new or changed. Insights : These findings highlight the trend to associate race with disease while also furthering the misconception that there are innate, heritable differences between socially constructed groups and establishing light skin tone as the norm. While some favorable changes were made to the 2021 text, further work within this resource and across medical education is required to avoid further misuse of race and challenge existing implicit biases.

Addressing Consumerism and the Planetary Health Crisis: Behavioral Economics Approach in Public Policy

A pervasive sense of dissatisfaction is driving an unstoppable longing for materialistic things, resulting in anthropogenic disruptions of the earth’s natural systems. Behavioral economics integrates insights from psychological research into economic science. This policy brief explores how behavioral economics can be a practical approach citizens can use to adopt pro-environmental behavior without significant economic interference. It is worth examining why some people maintain the status quo by not embracing green options despite knowing their positive environmental impacts and even after financial incentives are offered for such options. Human decision anomalies are often driven by simple intuition, with decisions made by mental shortcuts known as heuristics. Nudging people and setting up a choice architecture may be a better way to alter people’s behavior to adopt a pro-environment lifestyle.

Influence of Behavioral Factors on Early Exercise of Employee Stock Option: A Literature Review

Employee Stock Option Plans (ESOPs) have gained prominence as a successful HR strategy that improves the employees’ performance and enables the company to have an economic and strategic advantage. However, the time at which employees decide to exercise their options determines the incentive that they derive from the stock options granted to them. It is one of the crucial financial decisions which can have immense implications for both employers and employees. According to the Black Scholes Model, an option's value is maximum when it is held until maturity. But most employees exercise their options early, which comes with a cost to both the employee and the company. It can be attributed to the fact that when faced with financial decisions the individuals do not always refer to complex finance models and formulas and make decisions rationally. Instead they resort to mental accounting and shortcuts leading to bounded rationality that can unconsciously impact their decision-making process. This paper explores the literature available on behavioral factors and biases that in addition to rational factors can affect the exercise of employee stock options.

Subjective machines: Probabilistic risk assessment based on deep learning of soft information.

For several years machine learning methods have been proposed for risk classification. While machine learning methods have also been used for failure diagnosis and condition monitoring, to the best of our knowledge, these methods have not been used for probabilistic risk assessment. Probabilistic risk assessment is a subjective process. The problem of how well machine learning methods can emulate expert judgments is challenging. Expert judgments are based on mental shortcuts, heuristics, which are susceptible to biases. This paper presents a process for developing natural language-based probabilistic risk assessment models, applying deep learning algorithms to emulate experts' quantified risk estimates. This allows the risk analyst to obtain an a priori risk assessment when there is limited information in the form of text and numeric data. Universal sentence embedding (USE) with gradient boosting regression (GBR) trees trained over limited structured data presented the most promising results. When we apply these models' outputs to generate survival distributions for autonomous systems' likelihood of loss with distance, we observe that for open water and ice shelf operating environments, the differences between the survival distributions generated by the machine learning algorithm and those generated by the experts are not statistically significant.

Country tourism advertising as a tool of spillover effects on the example of Poland

ABSTRACT The conceptual framework of this paper is based on the concept of bounded rationality. During the decision-making process, the consumer uses images as mental shortcuts. The occurrence of the spillover effect has been confirmed in the literature. To this date, the effect of tourism advertising on the respondents’ attitudes towards products originating from a particular country and the issue of whether it affects both dimensions of a country’s image (cognitive and affective) have not been studied. The present study responds to these two gaps by developing an extended model of the spillover effect. A sample of 138 Japanese students participated in a pre-post experiment to provide feedback before and after exposure to advertising. Research results indicate that the commercial have created a more positive attitude among respondents in all areas measured. The current study adds to the growing body of cross-disciplinary literature on country image.

Recognizing and Mitigating Gender Bias in Medical Teaching Assessments.

Recognizing and Mitigating Gender Bias in Medical Teaching Assessments.

Towards a general, modern theory of animal spirits

The author proposes an updated theory of animal spirits that builds on Keynes’s insights and extends them by incorporating recent developments in neuroscience and psychology. He places animal spirits in a broader perspective of two systems of reasoning, each pertaining to different degrees of uncertainty. He examines how animal spirits form beliefs by way of analogical reasoning, the mental shortcuts they use, and the role of emotions. He outlines how confidence is biased and distorts business forecasts. The brain seems to seek to achieve the highest level of confidence, and maintains this level by distorting subsequent cognitions so that they substantiate the initial view. Animal spirits are ambivalent. Emotions signal whether we under- or overachieve. Animal spirits push us to take greater or fewer risks in order to reach and secure our objectives. At the same time, they provide incentives to update or change our beliefs and goals, so that they may be more sensible. However, animal spirits also conclude hastily and seek confirmation of their beliefs; they elaborate patterns out of nothing and rely on stereotypes; and emotions may distort judgment. Interestingly, so long as confidence remains high, animal spirits continue to rule the roost; when confidence plummets, logic and calculation enter the fray.

Habits of Mathematical Thinking and Development of Heuristics

Psychological theory indicates that human use heuristics, the psychology of mental shortcuts, to make decisions, solve problems, or learn new knowledge. In this article, I will discuss how some common mathematical mistakes generate from the heuristics process while students learn mathematics or solve mathematics problems, and how we may help students avoid the hurdle of heuristic bias. Constructing heuristics ability of non-linear thinking will be discussed to shed light on teaching students high order of mathematical thinking.

Biasing Influence of 'Mental Shortcuts' on Diagnostic Decision-Making: Radiologists Can Overlook Breast Cancer in Mammograms When Prior Diagnostic Information Is Available.

When making decisions under uncertainty, people in all walks of life, including highly trained medical professionals, tend to resort to using ‘mental shortcuts’, or heuristics. Anchoring-and-adjustment (AAA) is a well-known heuristic in which subjects reach a judgment by starting from an initial internal judgment (‘anchored position’) based on available external information (‘anchoring information’) and adjusting it until they are satisfied. We studied the effects of the AAA heuristic during diagnostic decision-making in mammography. We provided practicing radiologists (N = 27 across two studies) a random number that we told them was the estimate of a previous radiologist of the probability that a mammogram they were about to see was positive for breast cancer. We then showed them the actual mammogram. We found that the radiologists’ own estimates of cancer in the mammogram reflected the random information they were provided and ignored the actual evidence in the mammogram. However, when the heuristic information was not provided, the same radiologists detected breast cancer in the same set of mammograms highly accurately, indicating that the effect was solely attributable to the availability of heuristic information. Thus, the effects of the AAA heuristic can sometimes be so strong as to override the actual clinical evidence in diagnostic tasks.