Heuristics are simple, efficient rules that humans use to make decisions in uncertain situations. We often think of heuristics as mental shortcuts that lead to quick, but sometimes inaccurate judgments. While this is true to some extent, heuristics can also be incredibly useful in helping us make robust decisions with limited information. In this blog post, we will explore some of the most useful heuristics and how they can be applied in different domains.
Anchoring and Adjustment Heuristic
The anchoring and adjustment heuristic is one of the most widely used heuristics in decision-making. It occurs when people focus on a single piece of information (the anchor) and make adjustments from there. For example, when asked to estimate the percentage of African countries that are members of the United Nations, people who are given an anchor of 10% tend to give estimates that are lower than those given an anchor of 65%.
One reason why the anchoring and adjustment heuristic is so prevalent is because it often leads to reasonably accurate decisions. This is because our brains are good at making small adjustments from an anchor point. However, the anchoring and adjustment heuristic can also lead to error when the adjustment is not made properly. For example, if the anchor point is set too high or low, then the final estimate will also be off.
The anchoring and adjustment heuristic is especially relevant in negotiation settings. For example, imagine you are buying a car and the seller anchors the price at $20,000. You then start your negotiation from there, trying to get the seller to come down to your ideal price point. Alternatively, if you are selling a car, you might want to start with a high anchor point in order to leave room for negotiation.
The bottom line is that anchors can have a big impact on our decisions and it’s important to be aware of this when negotiating prices or making other types of estimates.
Availability Heuristic
The availability heuristic occurs when people assess the likelihood of something occurring based on how easily examples come to mind. For example, people tend to overestimate the likelihood of plane crashes because they are highly publicized events that receive a lot of coverage in the media. Conversely, people tend to underestimate the likelihood of drowning because it’s not something that we hear about as often.
While the availability heuristic can sometimes lead us astray, it’s actually a very efficient way of making judgments with limited information. After all, our brain doesn’t have time to process all available information so it relies on what is readily available instead. Additionally, availability bias often leads us to make reasonable decisions because events that come more easily to mind are usually more important or memorable than those that don’t.
The availability heuristic is especially relevant when it comes to risk assessment. For example, if you’re trying to decide whether or not to buy travel insurance for your next vacation, you might consider all of the times that you’ve heard about people being stranded abroad without insurance coverage. This would likely lead you to purchase travel insurance even though the actual risk of something happening is relatively low.Similarly, if you’re trying to decide whether or not to get vaccinated against a certain disease, you might consider all of the times that you’ve heard about people getting sick from that disease. This would likely lead youvaccinate yourself even though the actual risk of something happening is relatively low.” In both these cases, the availability heuristic leads us t make decisions that er on the side of caution which can actually be quite helpful.”
While there are many different types of heuristics out there, these two —anchoring and availability—are some “of “the most common and useful ones “in many different domains.” Learning about these building blocks “of intuition can help “us better understand how we make decisions “and why we sometimes make errors.” With this knowledge in hand,” we can become more efficient decision-makers by leveraging “the power “of heuristics.”