Heuristics

Question 1

Whag are heuristics?

Answer 1

Refers to mental shortcuts that individuals use to simplify the decision making process. Thais especially occurs when these decision involve uncertainty and incomplete information

Question 2

Why do people understand heuristics?

Answer 2

Allows economists to better predict real-world behaviour and design interventions to help people make more informed and beneficial choices.

Question 3

The advantages of heuristics?

Answer 3

Speed and efficiency
Reduced cognitive overload
Adaptability to uncertainty

Question 4

Examples of heuristics?

Answer 4

Framing effect - how the information was presented rather than just facts itself.

Social proof - follows the actions or behaviours of others in uncertain situations.

Rule of thumb- based in common sense or experience.

Question 5

Disadvantages of heuristics?

Answer 5

Bias errors- can lead to predictable biases, overestimate or underestimate certain probabilities or outcomes.

Overconfidence- rely too heavily on their own judgements and experiences, this leading to overconfidence bias.

Familiarity heuristic- tend to favour things that are familiar, even if the unfamiliar alternative may be better.