Summer Institute 2018 - The Heuristics Revolution – Gerd Gigerenzer

THE HEURISTICS REVOLUTION
Decision problems come in two kinds: risk and uncertainty. Risk applies to situations that are well structured and stable, such as gambles, lotteries, and cancer screening, and has been tamed by the probabilistic revolution in the sciences since the beginning of the 17th century. Uncertainty applies to situations that are ill structured and instable, such as human interaction, investment, and business. Although this is an old distinction, most economists and psychologists have ignored it and used the probability theory as the sole tool for dealing with both. Part of the problem was that no theory of decision-making under uncertainty existed until recently. Based on Herbert Simon’s work, we are now developing such a theory of intelligent heuristics that are able to deal with situations of uncertainty. The science of heuristics addresses three questions. The first is descriptive: What are the heuristics in the adaptive toolbox of a species, an organization, or an individual, and how do people choose between heuristics? The second is normative: In which situations is a heuristic better than a complex strategy? This question is known as the study of the ecological rationality of heuristics, which proceeds using analysis and simulation. The third question is one of intuitive design: How can systems be designed that help experts and laypeople make better decisions, be it in developing simple rules for safer financial regulation or improving medical diagnosis? The methodological tools are threefold: formal models of heuristics (instead of vague labels such as “System 1”), competitive testing of heuristics against complex strategies (instead of null hypothesis testing), and tests of the predictive power of heuristics (instead of data fitting). The heuristic revolution complements the probabilistic revolution and overcomes the earlier misconception of heuristics as biases.

GERD GIGERENZER
Gerd Gigerenzer is Director of the Harding Center for Risk Literacy at the Max Planck Institute for Human Development in Berlin and partner of Simply Rational—The Institute for Decisions.

SUMMER INSTITUTE
The 2018 Summer Institute on Bounded Rationality took place on June 19 – 27, 2018, at the Max Planck Institute for Human Development in Berlin, Germany.