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Judgment Under Uncertainty

This paper investigates human decision-making under uncertainty. The authors discovered that people make predictable errors in judgment when dealing with complex decisions due to mental shortcuts called "heuristics" and "biases". Three key heuristics are identified: representativeness, which judges probability based on similarity; availability, which estimates frequency based on what can be recalled; and anchoring, which makes adjustments from an initial value. While heuristics aid swift thinking, they can also lead to biases. Understanding these cognitive tendencies could enhance decision-making under uncertainty.

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136 views3 pages

Judgment Under Uncertainty

This paper investigates human decision-making under uncertainty. The authors discovered that people make predictable errors in judgment when dealing with complex decisions due to mental shortcuts called "heuristics" and "biases". Three key heuristics are identified: representativeness, which judges probability based on similarity; availability, which estimates frequency based on what can be recalled; and anchoring, which makes adjustments from an initial value. While heuristics aid swift thinking, they can also lead to biases. Understanding these cognitive tendencies could enhance decision-making under uncertainty.

Uploaded by

Aastha
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Judgment Under Uncertainty

Heuristics and Biases by Amos Tversky and Daniel Kahneman

Amos Tversky and Daniel Kahneman case Judgement Under Uncertainty:


Heuristics and Biases is a landmark in the history of psychology. This case has a
particular impact on economics – where Tversky and Kahneman’s work helped
shape the entirely new sub discipline of ‘behavioral economics.
The interest in analyzing human decision behavior has considerably increased in
recent years. Within fields such as technology assessment, the possibilities and
limits of the ability of man to decide sometimes create sources of uncertainty that
may even threaten their very existence. Decisions under uncertainty are
traditionally defined by incomplete information or knowledge about a situation—
that is, the possible alternatives or the probability of their occurrence or their
outcomes are not known by the subjects. The sources of uncertainty are not
homogeneous. Uncertainty may be internally or externally attributed.
The paper investigates human decision-making, specifically what human brains
tend to do when we are forced to deal with uncertainty or complexity. Based on
experiments carried out with volunteers, Tversky and Kahneman discovered that
humans make predictable errors of judgement when forced to deal with evidence
or make challenging decisions. These errors stem from ‘heuristics’ and ‘biases’
mental shortcuts and assumptions that allow us to make swift, automatic decisions,
often usefully and correctly, but occasionally to our detriment. This paper talks
about an assessment of representativeness or similarity, which is usually performed
when people are asked to judge the probability that an object or event A belongs to
a class or process. An assessment of the availability of instances or scenarios,
which is often employed when people are asked to assess the frequency of a class
or the plausibility of a particular development. An adjustment from a starting point,
which is usually employed in numerical prediction when a relevant value is
available. These heuristics are highly economical and usually effective, but they
lead to systematic and predictable errors. A better understanding of these heuristics
and of the biases to which they lead could improve judgments and decisions in
situations of uncertainty.
Representativeness
Many of the questions related to probability with which people are concerned
belong to one of the following types and they are:
What is the probability that objects A can belong to class B?
What is the probability that event A can originate from process B?
What is the probability that process A might generate event B?
While answering such questions people generally rely on the representativeness
heuristic, in which probabilities are evaluated by the degree to which A is
representative of B, and by the degree of similarity between them. For example,
when A is highly representative of B, the probability that A originates from B is
judged to be high. On the other hand, if A is not similar to B, the probability that A
originates from B is judged to be below. For an illustration of judgment by
representativeness, consider an individual who has been described by a former
friend as follows: Shreeya is very shy and withdrawn, invariably helpful, but with
little interest in people, or in the world of reality. A meek and tidy soul, she has a
need for order and structure, and a passion for detail. How do people assess the
probability that Shreeya is engaged in a particular occupation from a list of
possibilities (for example, farmer, salesman, airline pilot, librarian, or physician)?
How do people order these occupations from most to least likely? In the
representativeness heuristic, the probability that Shreeya is a librarian, for example,
is assessed by the degree to which she is representative of, or similar to, the
stereotype of a librarian. Indeed, research with problems of this type has shown
that people order the occupations by probability and by similarity in exactly the
same way. This approach to the judgment of probability leads to serious errors,
because similarity, or representativeness, is not influenced by several factors that
should affect judgments of probability.
Summing up this paper described three heuristics that are employed in making
judgments under uncertainty: (i) representativeness, which is usually employed
when people are asked to judge the probability that an object or event A belongs to
class or process B; (ii) availability of instances or scenarios, which is often
employed when people are asked to assess the frequency of a class or the
plausibility of a particular development; and (iii) adjustment from an anchor,
which is usually employed in numerical prediction when a relevant value is
available. These heuristics are highly economical and usually effective, but they
lead to systematic and predictable errors. A better understanding of these heuristics
and of the biases to which they lead could improve judgments and decisions in
situations of uncertainty.

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