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Interesting counterpoint to Kahneman and Tversky,
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This review is from: Gut Feelings: Short Cuts to Better Decision Making (Paperback)
This is an interesting counterpoint to the heuristics and biases literature, best summarised in Daniel Kahneman's recent "Thinking, Fast and Slow", which lists the systematic errors that people make in decision making.
Gigerenzer has a much sunnier view of heuristics (the technical term for shortcuts in decision-making), pointing out how decisions can actually be improved by focusing on less information. His two most persuasive examples are how to catch a ball (keep your eyes on the ball and run so the angle is constant), and dealing with potential heart attack sufferers (provide a simple check-list with clear instructions for doctors to follow). In both these cases simplicity trumps more complex decision making.
Gigerenzer also provides explanations for two of the most well-known anomalies in Kahneman's and Tversky's work. The "Linda the feminist bank-teller" problem (Google it if you haven't heard of it), and "framing effects". The Linda anomaly is removed by a very simplistic rephrasing of the question, while Gigerenzer points out that in framing, linguistic phrases with the same logical meaning can contain cues about what someone is thinking.
But not all of Gigerenzer's examples are so persuasive. For example, he points out that portfolios of stocks based on the companies that individuals of the public recognise the best outperform mutual funds created by investment professionals. Gigerenzer argues that in this case the "recognition heuristic" is a powerful one. But there are much simpler explanations. If the stock market is "efficient", then any portfolio of similar risk would have equal odds of outperforming. A dart-throwing monkey would have as good a chance of beating the professionals. By now it's well-known that the best way to beat the City is to put all your money in low-cost index funds which buy-and-hold the entire stock market at minimal cost (see John Bogle).
Gigerenzer says these heuristics are nature's solution to specific problems over millions of years of evolution. The question then is, how valid are they for the much-changed world of today? Yes, we might be good at catching balls, but are we good at handling situations of risk and uncertainty? And do we handle problems over time well, such as dieting and saving for retirement? The answer for me has to be a resounding no to those last two questions. Nonetheless, this book has challenged my previous view that all heuristics are bad.