The Use of Heuristics in Decision Making Under Risk and Uncertainty

Abstract

When making decisions under risk and uncertainty, people often rely on heuristics. A heuristic is a simple decision rule that allows one to make judgments without integrating all the information available. Especially in complex situations and under time pressure, simplification supports humans in coping with their limited capacity to process information. In this chapter, we introduce two main approaches: the heuristics and biases program (including the availability, representativeness, affect, as well as anchoring and adjustment heuristics) and the fast and frugal heuristics. Sometimes, the use of heuristics can lead people astray and result in errors, which is the focus of the heuristics and biases program. But in many other instances, heuristics support effective decision making in complex situations and lead to sufficient outcomes, which is the focus of the fast and frugal heuristics approach. We discuss the underlying processes, criticisms, and limitations of both approaches. We also consider practical implications of heuristics using the perception of climate change as an example and introduce applications in the form of nudges and decision trees.