Behavioural economics’ bone of contention
Should we avoid using heuristics, or instead prefer them over ‘rational’ methods?
Behavioural economics is the branch of the dismal science that is concerned with how real people behave in a way that deviates from the neoclassical assumptions of the so-called homo economicus. Not surprisingly, over the years it has on occasion run into conflicts with its neoclassical relative, although more recently the antagonism seems to have been turning into a rapprochement between the two sides. But that is not the only area of tension in which behavioural economics is involved.
In another argument we find, in the opponent’s corner, Gerd Gigerenzer, a German psychologist (as well as an accomplished banjo player). Throughout most of his career, he has been studying decision-making under uncertainty, and he is a long-standing critic of behavioural economics, or at least of some of it.
Gigerenzer is a vocal advocate of the use of heuristics in preference to conventional analytical and probabilistic calculations. He argues that simple rules of thumb are often (and demonstrably) a more parsimonious way of making ‘good enough’ decisions, and it is this that set (and kept) him on a collision course with, in particular, Daniel Kahneman and Amos Tversky (two pioneers in behavioural economics). But what are heuristics really, and why are they so controversial?
Less is more
The Encyclopaedia Britannica defines a problem-solving heuristic as “an informal, intuitive, speculative procedure that leads to a solution in some cases but not in others.” They are “cognitive shortcuts”, simple mechanisms that transform a given input to an output, without the baggage of a raft of additional data, or complicated calculations. They enable us quickly, and with modest effort, to find an answer or a solution that is most likely good enough. Heuristics are a key instrument in what Nobel laureate and polymath Herbert Simon called satisficing.
A powerful example Gigerenzer often refers to is the gaze heuristic for catching a ball. Most people are perfectly capable of performing this feat, despite the fact that it would, in principle, require simultaneously solving a quadratic equation and a linear equation —…