Models of bounded rationality : The approach of fast and frugal heuristics

In a complex and uncertain world, humans draw inferences and make decisions under the constraints of limited knowledge, resources, and time. Herbert Simon, with his call for models of bounded rationality, can be seen as one of the fathers of the recently initiated research program on "simple heuristics that make us smart" (Gigerenzer/Todd/the ABC Research Group, 1999). These heuristics perform well because they are ecologically rational: they explore the structure of environmental information and are adapted to this structure. The present review paper introduces the key concepts of this research tradition, and provides two examples: (1) The recognition heuristic, which exploits a partial lack of knowledge, and (2) Take The Best, a simple lexicographic strategy that deliberately ignores information although it is available. The paper explains their ecological rationality, provides empirical evidence of their use, and illustrates some of their applications in consumer behaviour and group decision making. Finally, this research program is related to various notions of rationality.

[1]  Kenneth R. Hammond,et al.  Human Judgment and Social Policy: Irreducible Uncertainty, Inevitable Error, Unavoidable Injustice , 2000 .

[2]  Ulrich Hoffrage,et al.  Quick estimation : Letting the environment do the work , 1999 .

[3]  Ulrich Hoffrage,et al.  Information aggregation in groups : The approach of simple group heuristics (SIGH) , 2003 .

[4]  Eric J. Johnson,et al.  Adaptive Strategy Selection in Decision Making. , 1988 .

[5]  R. Dawes.  Judgment under uncertainty: The robust beauty of improper linear models in decision making , 1979 .

[6]  B. Galef,et al.  Social influences on the identification of toxic foods by Norway rats , 1987 .

[7]  B. Newell,et al.  Take the best or look at the rest? Factors influencing "one-reason" decision making. , 2003, Journal of experimental psychology. Learning, memory, and cognition.

[8]  G Gigerenzer,et al.  Hindsight bias: a by-product of knowledge updating? , 2000, Journal of experimental psychology. Learning, memory, and cognition.

[9]  G Gigerenzer,et al.  Reasoning the fast and frugal way: models of bounded rationality. , 1996, Psychological review.

[10]  H. Simon,et al.  Models of Bounded Rationality: Empirically Grounded Economic Reason , 1997 .

[11]  G. Gigerenzer.  On Narrow Norms and Vague Heuristics: A Reply to Kahneman and Tversky (1996) , 1996 .

[12]  Gerd Gigerenzer,et al.  Models of ecological rationality: the recognition heuristic. , 2002, Psychological review.

[13]  U. Hoffrage,et al.  Fast, frugal, and fit: Simple heuristics for paired comparison , 2002 .

[14]  Gerd Gigerenzer,et al.  The adaptive toolbox and life span development: Common questions? , 2003 .

[15]  Gwen M. Wittenbaum,et al.  Management of information in small groups. , 1996 .

[16]  P M Todd,et al.  Précis of Simple heuristics that make us smart , 2000, Behavioral and Brain Sciences.

[17]  G. Stasser,et al.  Pooling of Unshared Information in Group Decision Making: Biased Information Sampling During Discussion , 1985 .

[18]  D. Goldstein,et al.  How good are simple heuristics , 1999 .

[19]  Gerd Gigerenzer,et al.  Communicating Statistical Information , 2000, Science.

[20]  Eric J. Johnson,et al.  The adaptive decision maker , 1993 .

[21]  A. Einstein.  Über einen die Erzeugung und Verwandlung des Lichtes betreffenden heuristischen Gesichtspunkt [AdP 17, 132 (1905)] , 2005, Annalen der Physik.

[22]  A. Bröder.  Assessing the empirical validity of the "take-the-best" heuristic as a model of human probabilistic inference. , 2000, Journal of experimental psychology. Learning, memory, and cognition.

[23]  B. Galef,et al.  Further evidence that Norway rats do not socially transmit learned aversions to toxic baits , 1990 .

[24]  Allen Newell,et al.  Human Problem Solving. , 1973 .

[25]  T. Sargent.  Bounded rationality in macroeconomics , 1993 .

[26]  Ulrich Hoffrage,et al.  Hindsight bias: How knowledge and heuristics affect our reconstruction of the past , 2003, Memory.

[27]  Nicolaas J. Vriend,et al.  Rational behavior and economic theory , 1996 .

[28]  A. Tversky,et al.  Judgment under Uncertainty: Heuristics and Biases , 1974, Science.

[29]  G. Stasser,et al.  Information salience and the discovery of hidden profiles by decision-making groups: A “thought experiment”☆ , 1992 .

[30]  R. Selten,et al.  Bounded rationality: The adaptive toolbox , 2000 .

[31]  G Gigerenzer,et al.  The adaptive toolbox: toward a darwinian rationality. , 2001, Nebraska Symposium on Motivation. Nebraska Symposium on Motivation.

[32]  O. Huber.  Nontransitive multidimensional preferences: Theoretical analysis of a model , 1979 .

[33]  P. Laplace.  A Philosophical Essay On Probabilities , 1902 .

[34]  H. Simon,et al.  Invariants of human behavior. , 1990, Annual review of psychology.

[35]  Ulrich Hoffrage,et al.  When do people use simple heuristics, and how can we tell? , 1999 .

[36]  Reid Hastie,et al.  The impact of information on small group choice. , 1997 .

[37]  Gerd Gigerenzer,et al.  How to Improve Bayesian Reasoning Without Instruction: Frequency Formats , 1995 .

[38]  A. Edland.  Time pressure and the application of decision rules: choices and judgments among multiattribute alternatives. , 1994, Scandinavian journal of psychology.

[39]  Gerd Gigerenzer,et al.  Fast and frugal heuristics: The tools of bounded rationality , 2004 .

[40]  George J. Stigler,et al.  De Gustibus Non Est Disputandum , 2010 .

[41]  C. C. Pratt.  Zur psychologie des produktiven denkens [The psychology of productive thinking]. , 1936 .

[42]  P. McLeod,et al.  Do Fielders Know Where to Go to Catch the Ball or Only How to Get There , 1996 .

[43]  P. Todd,et al.  Simple Heuristics That Make Us Smart , 1999 .