Hostname: page-component-586b7cd67f-rcrh6 Total loading time: 0 Render date: 2024-11-27T23:04:17.508Z Has data issue: false hasContentIssue false
  • English
  • Français

HARNESSING HEURISTICS FOR ECONOMIC POLICY

Published online by Cambridge University Press:  09 January 2018

Ramzi Mabsout  and
Jana G. Mourad
Ramzi Mabsout
Affiliation:
American University of Beirut, P.O. Box 11-0236, Department of Economics, Beirut, Lebanon. Email: [email protected]. URL: https://www.aub.edu.lb/fas/economics/Pages/mabsout.aspx.
Jana G. Mourad
Affiliation:
P.O. Box 70-890, Antelias, Lebanon. Email: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract:

The effectiveness of heuristics has received contradicting interpretations in the behavioural sciences. We study the policy implications of two programmes that dispute the effectiveness of heuristics – the biases and heuristics and the fast and frugal heuristics programmes. While the first blames heuristics for most errors in judgement, the second posits heuristics as simple mental algorithms that work well in a range of environments. We argue that the fast and frugal programme is less paternalistic insofar as it models humans as effective decision-makers in a range of environments. However, in the rapidly changing environments of the 21st century, both are needed to inform evidence-based policies.

Keywords

Biases and heuristicseconomic policyfast and frugal heuristicslibertarian paternalismnudges
Type
Article
Information
Economics & Philosophy , Volume 34 , Issue 2 , July 2018 , pp. 135 - 163
Copyright
Copyright © Cambridge University Press 2018 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Benartzi, S. and Thaler, R.. 2001. Naıve diversification strategies in defined contribution saving plans. American Economic Review 91: 79–98.Google Scholar
Berg, N. 2003. Normative behavioral economics. Journal of Socio-Economics 32: 411–427.Google Scholar
Berg, N. 2014a. The consistency and ecological rationality approaches to normative bounded rationality. Journal of Economic Methodology 21: 375–395.Google Scholar
Berg, N. 2014b. Success from satisficing and imitation: entrepreneurs’ location choice and implications of heuristics for local economic development. Journal of Business Research 67: 1700–1709.Google Scholar
Berg, N. and Gigerenzer, G.. 2007. Psychology implies paternalism? Bounded rationality may reduce the rationale to regulate risk taking. Social Choice and Welfare 28: 337–359.Google Scholar
Berg, N. and Gigerenzer, G.. 2010. As-if behavioral economics: neo-classical economics in disguise? History of Economic Ideas 18: 133–165.Google Scholar
Berg, N., Biele, G. and Gigerenzer, G.. 2016. Consistent Bayesians are no more accurate than non-Bayesians: economists surveyed about PSA. Review of Behavioral Economics 3: 189–219.Google Scholar
Berlin, I. 1969. Two concepts of liberty. In Four Essays on Liberty, 118–172. Oxford: Oxford University Press.Google Scholar
Bond, M. 2009. Decision-making: risk school. Nature 461: 1189–1192.Google Scholar
Brunswik, E. 1952. The conceptual framework of psychology. International Encyclopedia of Unified Science 1: 4–102.Google Scholar
Buchanan, J. 1978. Natural and artifactual man. In The Collected Works of James Buchanan, Volume I: The Logical Foundations of Constitutional Liberty [1999]. Indianapolis, IN: Liberty Fund.Google Scholar
Camerer, C. and Loewenstein, G.. 2004. Behavioral economics: past, present, future. In Advances in Behavioral Economics, ed. Camerer, C., Loewenstein, G. and Rabin, M.. Princeton, NJ: Princeton University Press.Google Scholar
Camerer, C., Issacharoff, S., Loewenstein, G., O'Donoghue, T. and Rabin, M.. 2003. Regulations for conservatives: behavioral economics and the case for ‘asymmetric’ paternalism. University of Pennsylvania Law Review 151: 1211.Google Scholar
Camerer, C., Loewenstein, G. and Rabin, M.. 2004. Advances in Behavioral Economics. Princeton, NJ: Princeton University Press.Google Scholar
Conlisk, J. 1996. Why bounded rationality? Journal of Economic Literature 34: 669–700.Google Scholar
Conly, S. 2014. Against Autonomy: Justifying Coercive Paternalism. New York, NY: Cambridge University Press.Google Scholar
Cosmides, L. and Tooby, J.. 1996. Are humans good intuitive statisticians after all? Rethinking some conclusions from the literature on judgment under uncertainty. Cognition 58: 1–73.Google Scholar
Demiguel, V., Garlappi, L. and Uppal, R.. 2009. Optimal versus naïve diversification: how inefficient is the 1/N portfolio strategy? Review of Financial Studies 22: 1915–1953.Google Scholar
Dworkin, G. 1983. Paternalism. In Paternalism, ed. Sartorius, R., 19–34. Minneapolis, MN: University of Minnesota Press.Google Scholar
Dworkin, G. 2016. Paternalism. In The Stanford Encyclopedia of Philosophy, ed. Zalta, E. N.. https://plato.stanford.edu/archives/win2016/entries/paternalism/.Google Scholar
Edwards, W. 1954. The theory of decision making. Psychological Bulletin 51: 380–417.Google Scholar
Evans, J. 2003. In two minds: dual-process accounts of reasoning. Trends in Cognitive Science 7: 454–459.Google Scholar
Fischhoff, B. 1982. Debiasing. In Judgment Under Uncertainty: Heuristics and Biases, ed. Kahneman, D., Slovic, P. and Tversky, A., 422–444. New York, NY: Cambridge University Press.Google Scholar
French, K. and Poterba, J.. 1991. Investor diversification and international equity markets. American Economic Review (Papers & Proceedings) 81: 222–226.Google Scholar
Gigerenzer, G. 2007. Gut Feelings: The Intelligence of the Adaptive Unconscious. London: Penguin Books.Google Scholar
Gigerenzer, G. 2008. Fast and frugal heuristics. In Rationality for Mortals: How People Cope with Uncertainty, 20–45. New York, NY: Oxford University Press.Google Scholar
Gigerenzer, G. 2014. Risk Savvy. How to Make Good Decisions. New York, NY: Penguin Classics.Google Scholar
Gigerenzer, G. 2015. On the supposed evidence for libertarian paternalism. Review of Philosophy and Psychology 6: 361–383.Google Scholar
Gigerenzer, G. and Brighton, H.. 2009. Homo heuristicus: why biased minds make better inferences. Topics in Cognitive Science 1: 107–143.Google Scholar
Gigerenzer, G. and Selten, R. (ed.). 2001. Rethinking rationality. In Bounded Rationality: The Adaptive Toolbox, 1–12. Cambridge, MA: MIT Press.Google Scholar
Gigerenzer, G. and Todd, P.. 1999. Fast and frugal heuristics: The adaptive toolbox. In Simple Heuristics that Make us Smart: Evolution and Cognition, ed. Gigerenzer, G., Todd, P. M. and ABC Research Group, 3–36. New York, NY: Oxford University Press.Google Scholar
Gigerenzer, G., Czerlinksi, G. and Martignon, L.. 2002. How good are fast and frugal heuristics? In Heuristics and Biases: The Psychology of Intuitive Judgment, ed. Gilovich, T., Griffin, D. and Kahneman, D., 559–581. Cambridge: Cambridge University Press.Google Scholar
Gilboa, T., Postlewaite, A. and Schmeidler, D.. 2009. Is it always rational to satisfy Savage's axioms? Economics and Philosophy 25: 285–296.Google Scholar
Gilovich, T. and Griffin, D.. 2002. Introduction – heuristics and biases: then and now. In Heuristics and Biases: The Psychology of Intuitive Judgment, ed. Gilovich, T., Griffin, D. and Kahneman, D., 1–18. New York, NY: Cambridge University Press.Google Scholar
Gilovich, T., Griffin, D. and Kahneman, D.. 2002. Heuristics and Biases. The Psychology of Intuitive Judgments. New York, NY: Cambridge University Press.Google Scholar
Glaeser, E. 2006. Paternalism and psychology. University of Chicago Law Review 73: 133–155.Google Scholar
Goldstein, D. and Gigerenzer, G.. 1999. The recognition heuristics: how ignorance makes us smart. In Simple Heuristics That Make us Smart. Evolution and Cognition, ed. Gigerenzer, G., Todd, P. M. and ABC Research Group, 37–58. New York, NY: Oxford University Press.Google Scholar
Goodwin, T. 2012. Why we should reject nudge. Politics 32: 85–92.Google Scholar
Grüne-Yanoff, T. 2012. Old wine in new casks: libertarian paternalism still violates liberal principles. Social Choice and Welfare 38: 635–645.Google Scholar
Halpern, D. 2015. Inside the Nudge Unit. How Small Changes can Make a Big Difference. London: WH Allen.Google Scholar
Hammond, K. 1955. Probabilistic functioning and the clinical method. Psychological Review 62: 255–262.Google Scholar
Hammond, K. 1996. Human Judgments and Social Policy. New York, NY: Oxford University Press.Google Scholar
Hastie, R. and Rasinski, T.. 1988. The concept of accuracy in social judgment. In The Social Psychology of Knowledge, ed. Bar-Tal, D. and Kruglanski, A.. Cambridge: Cambridge University Press and Editions de la Maison des Sciences de l'Homme.Google Scholar
Hausman, D. and Welch, B.. 2010. Debate: To nudge or not to nudge. Journal of Political Philosophy 18: 123–136.Google Scholar
Heukelom, F. 2014. Behavioral Economics. A History. Cambridge: Cambridge University Press.Google Scholar
Hodgson, G. 1993. Economics and Evolution: Bringing Life Back into Economics. Ann Arbor, MI: Michigan University Press.Google Scholar
Hoffrage, U. and Gigerenzer, G.. 2004. How to improve the diagnostics inferences of medical experts. In Experts in Science and Society, ed. Kurze-Milke, E. and Gigerenzer, G., 249–268. Dordrecht: Kluwer.Google Scholar
Kahneman, D. 2011. Thinking, Fast and Slow. New York, NY: Macmillan.Google Scholar
Kahneman, D. and Klein, G.. 2009. Conditions for intuitive expertise: a failure to disagree. American Psychologist 64: 515–526.Google Scholar
Kahneman, D. and Tversky, A.. 1984. Choices, values, frames. American Psychologist, 34: 341–350.Google Scholar
Kahneman, D. and Tversky, A.. 1996. On the reality of cognitive illusions. Psychological Review 103: 582–591.Google Scholar
Kahneman, D., Slovic, P. and Tversky, A.. 1982. Judgment Under Uncertainty: Heuristics and Biases. New York, NY: Cambridge University Press.Google Scholar
Klein, D. 2004. Statist quo bias. Economic Journal Watch 1: 260–271.Google Scholar
Klein, G. 2009. Streetlights and Shadows. Searching for the Keys to Adaptive Decision Making. Cambridge, MA: MIT Press.Google Scholar
Kosters, M. and Van der Heijden, J.. 2015. From mechanism to virtue: evaluating nudge theory. Evaluation 21: 276–291.Google Scholar
Lopes, L. 1991. The rhetoric of irrationality. Theory and Psychology 1: 65–82.Google Scholar
Loewenstein, G. and Haisley, E.. 2008. The economist as a therapist: methodological ramifications of “light paternalism”. In The Foundations of Positive and Normative Economics: A Hand Book, ed. Caplin, A. and Schotter, A., 210–248. New York, NY: Oxford University Press.Google Scholar
Loewenstein, G. and O'Donoghue, T.. 2006. We can do things the easy way or the hard way: negative emotions, self-regulation, and the law. University of Chicago Law Review 73: 183–206.Google Scholar
McQuillin, B. and Sugden, S.. 2012. Reconciling normative and behavioral economics: the problems to be solved. Social Choice and Welfare 38: 553–567.Google Scholar
Mellers, B., Hertwig, R. and Kahneman, D.. 2001. Do frequency representations eliminate the conjunction effects? Psychological Science 12: 269–275.Google Scholar
Nisbett, R., Krantz, D., Jepson, C. and Fong, G.. 1982. Improving inductive inference. In Judgment Under Uncertainty: Heuristics and Biases, ed. Kahneman, D., Slovic, P. and Tversky, A., 445–462. New York, NY: Cambridge University Press.Google Scholar
Nisbett, R., Fong, G., Lehman, D. and Chen, P.. 1987. Teaching reasoning. Science 238: 625– 631.Google Scholar
OECD. 2017. Use of Behavioural Insights in Consumer Policy. OECD Science, Technology and Innovation Policy Papers No. 36, January 2017. Paris: OECD.Google Scholar
Ortmann, A., Gigerenzer, G., Borges, B. and Goldstein, D.. 2008. The recognition heuristic: a fast and frugal way to investment choice? In Handbook of Experimental Economics Results, ed. Plott, C. and Smith, V., 993–1003. Amsterdam: Elsevier/North Holland.Google Scholar
Payne, J., Bettman, J. and Johnson, E.. 1993. The Adaptive Decision Maker. New York, NY: Cambridge University Press.Google Scholar
Peterson, C. and Beach, L.. 1967. Man as an intuitive statistician. Psychological Bulletin 68: 29–46.Google Scholar
Popper, K. 1972. Objective Knowledge: An Evolutionary Approach. Oxford: Clarendon Press.Google Scholar
Rabin, M. 1998. Psychology and economics. Journal of Economic Literature 36: 11–46.Google Scholar
Radner, R. 1995. Economic Survival. Nancy L. Schwartz Lecture. Lecture delivered May 1995 at the J. L. Kellogg School of Management, Northwestern University.Google Scholar
Rebonato, R. 2012. Taking Liberties: A Critical Examination of Libertarian Paternalism. Basingstoke: Palgrave Macmillan.Google Scholar
Samuels, R., Stich, S. and Bishop, M.. 2002. Ending the rationality wars: how to make the disputes about human rationality disappear. In Common Sense, Reasoning and Rationality, ed. Elio, R., 236–268. New York, NY: Oxford University Press.Google Scholar
Saint-Paul, G. 2011. The Tyranny of Utility: Behavioral Social Sciences and the Rise of Paternalism. Princeton, NJ: Princeton University Press.Google Scholar
Sent, E. 2004. Behavioral economics: how psychology made Its (limited) way back into economics. History of Political Economy 36: 735–760.Google Scholar
Simon, H. 1955. A behavioral model of rational economics man. Quarterly Journal of Economics 69: 99–118.Google Scholar
Smith, A. 1776. An Inquiry into the Nature and Causes of the Wealth of Nations. New York, NY: The Modern Library.Google Scholar
Smith, V. 2008. Rationality in Economics. Constructivist and Ecological Forms. New York, NY: Cambridge University Press.Google Scholar
Stanovich, K. 2004. The Robot´s Rebellion. Finding Meaning in the Age of Darwin. Chicago, IL: Chicago University Press.Google Scholar
Sugden, R. 2008. Why incoherent preferences do not justify paternalism. Constitutional Political Economy 19: 226–48.Google Scholar
Sunstein, C. 1996. Incommensurability and valuation in law. Michigan Law Review 92: 779–861.Google Scholar
Sunstein, C. 2005. Moral heuristics. Behavioral and Brain Sciences 28: 531–573.Google Scholar
Sunstein, C. 2013a. The Storrs Lectures: Behavioral Economics and paternalism. Yale Law Journal 122: 1670–2105.Google Scholar
Sunstein, C. 2013b. Simpler: The Future of Government. New York, NY: Simon & Schuster.Google Scholar
Sunstein, C. 2014. Why Nudge? The Politics of Libertarian Paternalism. New Haven, CT: Yale University Press.Google Scholar
Sunstein, C. and Thaler, R.. 2003. Libertarian paternalism is not an oxymoron. University of Chicago Law Review 70: 1159–1202.Google Scholar
Thaler, R. 1980. Towards a positive theory of consumer choice. Journal of Economic Behavior and Organization 1: 39–60.Google Scholar
Thaler, R. 1991. Quasi-Rational Economics. New York, NY: Russell Sage Foundation.Google Scholar
Thaler, R. 2002. The Winner's Curse. Paradoxes and Anomalies of Economic Life. Princeton, NJ: Princeton University Press.Google Scholar
Thaler, R. and Sunstein, C. R.. 2008. Nudge: Improving Decisions about Health, Wealth, and Happiness. New Haven, CT: Yale University Press.Google Scholar
Todd, P. and Gigerenzer, G.. 2007. Environments that make us smart: ecological rationality. Current Directions in Psychological Science 16: 167–171.Google Scholar
Tversky, A. 1972. Elimination by aspects: a theory of choice. Psychological Review 79: 281–299.Google Scholar
Tversky, A. and Kahneman, D.. 1974. Judgments under uncertainty: heuristics and biases. Science 185: 1124–1131.Google Scholar
Tversky, A. and Kahneman, D.. 1983. Extensional versus intuitive reasoning: the conjunction fallacy in probability judgment. Psychological Review 91: 292–315.Google Scholar
White, M. 2013. The Manipulation of Choice: Ethics and Libertarian Paternalism. New York, NY: Palgrave Macmillan.Google Scholar
Whitman, D. and Rizzo, M.. 2015. The problematic welfare standard of behavioral paternalism. Review of Psychology and Philosophy 6: 409–425.Google Scholar
Wilson, T., Centerbar, D. and Brekke, N.. 2002. Mental contamination and the debiasing problem. In Heuristics and Biases. The Psychology of Intuitive Judgment, ed. Gilovich, T., Griffin, D. and Kahneman, D., 185–200. New York, NY: Cambridge University Press.Google Scholar
World Bank. 2015. World Development Report 2015: Mind, Society, and Behavior. Washington, DC: World Bank. doi: 10.1596/978-1-4648-0342-0.Google Scholar