In our day-to-day lives, we look for methods and ways to get any task done or take an important decision in the most efficient and effective way possible, while also ensuring that minimal effort is applied while doing the task or making the decision. This is where an important concept known as Heuristics comes into play. Heuristics refers to cognitive shortcuts that enable speedy and effective problem-solving and judgment. These "rule of thumb" techniques speed up decision-making and would enable people to carry out their tasks without continually pausing to consider their future plan of action. This concept was coined in the 1950s, when a cognitive psychologist and economist, Herbert Simon, who won the Nobel Prize in economics discussed the concept that people try their best to make rational choices and decisions, but they face a lot of cognitive limitations in this process. He said that rational thinking involves weighing all available options and information, but people are not able to take purely rational decisions as they face limitations such as time constraints or limited availability of information. Amos Tversky and Daniel Kahneman, two psychologists, presented their findings on cognitive biases in the 1970s. They suggested that all these biases have an impact on people's thinking and perceptions. This is considered a s a limitation as well.
All these
restrictions drive us to use mental shortcuts in order to assist us to make
sense of various situations. Although Tversky and Kahneman's work introduced
the subject of heuristics and the specific methods of cognition that people
depend on to simplify the decision-making procedure, Simon's research showed
that humans were restricted in their capacity to make logical decisions.
Types of Heuristic
There exist various types of heuristics that people tend to focus on while making decisions. These are given as follows-
- Availability Heuristic- This type involves making choices depending on how simple it is to think about something. A person might be able to recall several pertinent examples rapidly while trying to make an important decision. This person will probably assess all available outcomes as they are easier for that person to recall the same.
This could be understood through the following example- When traveling to places of ritual significance like Kedarnath, we may be well aware of the accidents that have taken place there, so at a point of time we might question ourselves- whether we wish to travel there, by what mode of transportation is it safe. What flight should we ideally take when going from one place to another based on the experiences shared by the people who traveled with that airline. Thus in a way, we can say that past memories and experiences do influence our decisions.
- Familiarity Heuristic- It refers to a situation where individuals tend to have more favourable impressions of things, people, or locations that they have previously experienced than of those that they have not. Even if the new alternative has more advantages, individuals may choose it if they have a choice between two things they are more accustomed to.
Let us see the following example- two
companies namely Apple and Samsung release their new series of phones in 2022 while keeping the price in mind- we do observe that an iPhone is relatively
costlier than a Samsung phone. It can be seen that an iPhone provides us
with higher alternative benefits compared to the latter as it comes with a
good camera, security measures, and a fairly better interface. But a person’s
preference for a particular brand suppose Samsung, may not have that huge of an
impact on his demand for a new prototype released by Apple. Thus we can see
that after a point of time, people here consumers can be seen to be loyal to a
brand thereby trusting its produced goods and services and preferring it over
the rest.
- Representativeness Heuristic- This type of Heuristic compares a present situation to a prototype which is used as a reference point for this decision.
For example- In the long course of time- especially till our adulthood,
we pass through different stages of our life- including school, college and we
do make new friends here. As our wavelength to them in a way matches- we
sometimes might remember time spent with our school friends when spending the
same with our college ones- thereby it stimulates and triggers our memories in
a way.
- Affect Heuristic- This type entails making decisions that are impacted by the feeling that one is having at the time. For instance, studies have shown that when people are feeling good about themselves, they are more likely to look at decisions as having benefits and fewer dangers. On the other hand, negative emotions cause people to concentrate more on the potential drawbacks of a choice than on its potential advantages.
- Anchoring Heuristic- This is a form of
bias which includes the propensity to let the first idea we hear or learn
impact us excessively. This can make it more challenging to take other aspects
into account and result in making bad decisions.
Like for Example- When shopping for shoes, the shopkeeper may show us something in that new shoe that we haven’t earlier heard off, thus we may buy that instantly without looking at the other options that may possess more qualities than the former.
- Scarcity Heuristic- Scarcity principle states that we perceive things as being fundamentally more valuable when they are rare or less easily accessible to us. Businesses frequently employ the scarcity heuristic to persuade consumers to buy particular goods.
For example- Usually in thrift store we might see catchy slogans written
on commodities with limited time offers or sale of the day written. We may
perceive them to be some kind of a unique object which is also scarce in
quantity.
- Trial and Error Heuristic- Another sort of heuristic is trial and error, where individuals tend to employ a variety of approaches until they discover one that works. Learning any new skill or game has nothing to do with our past experience as it is something fairly new to us, thus we may equip a method of trial and error.
Prototype Theory and Relative Theories of Heuristics
Various theories depend on heuristics in order to prove something or to reach a concrete conclusion with minimal effort. One such theory is the Prototype theory. This well-known cognitive science theory explains how we recognise objects and people. It implies that we classify various things and people in our memories. We might have categories for chairs, fish, books, and other things, for instance. According to the prototype theory, we create prototypical representations for all these categories by aggregating every instance of a certain category we come across. Heuristics may result from prototype theory because this happens whenever we classify an object or event into the group that the prototype for that object or event represents because we perceive it to be similar to the prototype which is recorded in our consciousness. In this case, we can see that the prototype acts as a short cut, where this prototype is used as a reference point to simplify the process of decision making.
There are various areas where heavy dependence on heuristics exists, among which are certain theories and concepts. Here each theory has been supported with their current day-to-day examples as well to contemplate them better.
- Attribute Substitution- this
theory states that people usually substitute simpler questions which are
highly analogous to a given complex question. For Example- Especially in
India, with the current education system that we have equipped we are
being asked in Class 10th itself about what we want to pursue in the near
future. Given that age we may not be able to concisely point out what we
want to do in the near future- with respect to which field and what work-
thereby we are in a dilemma. Rather than focusing on such a complex life
decision we plan to substitute it by a simpler question as to what we
would like to streamline ourselves to for the next 2 years- Science, Commerce
or Humanities.
- Effort Reduction- People can
sometimes be seen using heuristic as an escape route that is as a sign of
cognitive laziness, thereby reducing the mental stress that comes with the
process and thus by making quicker decisions and choices. For Example-
Online Shopping and other facilities- let’s take a real life example here-
in our locality we do have a lot of grocery shops just not so far from
each other, they may be selling different quantities of goods and services
at relatively different prices. A curd packet at Nandini store which is
2km away from my stay may cost me Rs 11 whereas the same packet at a
grocery store which is hardly 1 km away from my stay cost me Rs 12 ( Rs
11+ Rs 1 Refrigeration Cost). Rather than going to anywhere I may at my
comfort wish to order curd online, they may charge an extra Rs 25 delivery
charge- but it is upto me then if the marginal benefit in that case for me
is apt.
- Fast and Frugal- People are
often seen to be using heuristics because it is fairly faster and correct
in most of the prevailing cases. Some theories have also stressed on the
same fact emphazing that most of the times heuristics are actually more
sound or accurate than being biased in nature. For example- Online Banking
and Credit Services. At a point of time we could see long queues in front
of banks, people withdrawing hard cash and carrying it around and using
for every transaction taking place. At a point of time when we started collecting
less coins the in hand money couldn’t suffice the cost we incur and thus
we may end up paying extra or less. This problem was avoided by coming up
with digital financial inclusion as we begin to now access money through
net banking or other sources like Phonepe, Google pay, Paytm, etc. This
has made our transactions effortless, fast, and easier to maintain and has
helped us keep a check on our balances and expenditure incurred per
se.
Heuristics and Algorithm- It is a very common situation when two concepts are confused with each other. This situation exists amongst two very relevant concepts, Heuristics, and Algorithms. Even though heuristics and algorithms are two terms that are related to each other in some ways, they are not the same. Heuristics are mental shortcuts which are essentially best guesses, while algorithms are guidelines that provide predictable, trustworthy results. It could also be noted that h Heuristics may not always produce accurate results, but in the case of algorithms, accurate results can be obtained every time.
Criticisms of Heuristics- It is known that all concepts have certain relevant applications, along with certain criticisms. In the case of Heuristics, it can be seen from all the above-mentioned real-life examples, that this concept is a relevant one and is applicable in various situations involving the decision-making process. That being said, there are certain criticisms directed toward the concept of heuristics. The most relevant criticism of the concept of heuristics is that in some cases it can lead to bias. It does help us to solve our daily life problems and further help us in a faster decision-making process but at the same time, it may lead us to commit certain unforeseen errors. Sometimes it can lead to false judgments as well justifying how representative and common things around may seem to be. Always relying on past experiences also won’t do any good as with changing times, conditions change. Thus this may make heuristics obsolete in nature in the long run. Often we can see heuristics undertaking certain types of stereotypes and prejudices and considering we take and use mental shortcuts to achieve our outcomes, we may overlook certain relevant information. Stereotyping categorizations over the other may not lead us to contemplate it with reality.
To tackle these criticisms, the following has been recommended-
· Slow down- It highly depends on how we are able to handle situations. It is so likely that we may have made an error while making a judgment just under the pressure of making a decision quickly. Try distracting yourself, find your focus point and with a fresh mind, you can overlook through a fresh perspective.
- Identify the Goal- Find what works best for you and thereby make decisions in the best of your interest. Do take a moment to comprehend the same by asking your inner self and you will be able to get a way indeed.
·
Processing Emotions-
Fast decisions are frequently influenced by emotions that come from past
encounters. While emotions and sentiments can be beneficial, if they keep us
from comprehending the big picture, they may have a negative impact on our
judgments.
·
All-or-nothing
thinking recognition- It's a popular misconception that there is just one clear
path you must choose after making a decision and that there is no turning back.
In actuality, this isn't always the truth. There are occasionally trade-offs
including two options, or a third or fourth alternative that we hadn't
initially considered. Rather than adopting an all-or-nothing mindset, it is
important to understand the subtleties and potential outcomes of all the
options available.
References-
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Puaschunder, Julia M., Nudgitize Me! A Behavioral Finance Approach to Minimize Losses and Maximize Profits from Heuristics and Biases (March 10, 2017). International Journal of Management Excellence, 10, 2, 1241-1256. Journal of Organizational Psychology, 18, 1, 46-66., Available at SSRN: https://ssrn.com/abstract=2930824 or http://dx.doi.org/10.2139/ssrn.2930824
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