<p>In our daily lives, we do not have the time, knowledge or skills to make the perfect decision/choice every time, and it may be too exhausting and time-consuming to make really big decisions in a perfect way all the time. This makes us use <strong>mental shortcuts</strong>, or <em>heuristics</em> to make ‘good enough&#39; decisions.</p>
<p>Also known as <em>rules of the thumb</em>, heuristics makes us jump forward instead of doing all the hard-thinking, based on tried and tested assumptions that may blind us from the changing world, where nothing stays the same.</p>

Heuristics: Mental Shortcuts

Problem Solving

Self Improvement

<p>When our heuristics make us do unreasonable things and ignore obvious dangers, it is termed as a <em>cognitive bias</em>, a systematic error that is based out of our unawareness.</p>
<p><strong>These systematic thinking patterns form the mental models that make us perform automated functions, and blind our views towards reality.</strong></p>

Cognitive Bias: The Other End Of Heuristics

<ul>
<li><strong>Representativeness Heuristic:</strong> assumes that if something reminds us of something we know already, it is part of the same group.</li>
<li><strong>Availability Heuristic</strong>: The more something comes in front of us, the more likely we think it is.</li>
<li><strong>Anchoring Heuristic:</strong> Unconsciously giving a disproportionate amount of importance to the first piece of information that is learned.</li>
</ul>

The Most Common Cognitive Biases

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<ol><li><a href="https://www.ecnmy.org/learn/"><span>Learn </span><meta/> </a><div><svg><title>Arrow </title><rect> </rect><rect> </rect> </svg> </div> </li><li><a href="https://www.ecnmy.org/learn/you/"><span>You </span><meta/> </a><div><svg><title>Arrow </title><rect> </rect><rect> </rect> </svg> </div> </li><li><a href="https://www.ecnmy.org/learn/you/choices-behavior/"><span>How you think, according to (other) economists </span><meta/> </a><div><svg><title>Arrow </title><rect> </rect><rect> </rect> </svg> </div> </li><li>What are ‘heuristics’? </li> </ol>

<p><strong>Heuristics are mental shortcuts we use to make decisions faster </strong>. One of the main ideas of <a href="http://www.ecnmy.org/learn/you/choices-behavior/what-is-bounded-rationality/">bounded rationality theory </a>is that people don’t have enough time to fully consider every decision they make. If we were all economic-supermen and women, (the so called <a href="http://www.ecnmy.org/learn/you/choices-behavior/rational-choice-theory-homo-economicus/">homo economicus </a>), before making a choice we would identify all the available alternatives, calculate how happy each will make us and pick the best option. This might be how we make really big decisions, but it's too exhausting a process to do constantly. </p>

<p><strong>Instead, we use shortcuts (heuristics) to arrive at decisions that, while maybe not the absolute best, are usually good enough </strong>. Heuristics are mental rules of thumb that allow us to jump past all the hard thinking that might otherwise go into a decision. For example, we like to assume that things that worked in the past will work in the future. Most of the times that’s a pretty good assumption, but sometimes it can blind us to changing circumstances. <strong>When heuristics make us ignore other information and do unreasonable things, it’s called cognitive bias </strong>. </p>

<p>Choosing to eat a dessert when we’re on a diet, or texting whilst driving even though we know it’s dangerous, or shopping compulsively even if our credit cards are begging for mercy can all be explained in part by cognitive biases.<strong>Cognitive biases are surprisingly predictable </strong>. All around the world, <a href="http://www.ecnmy.org/learn/your-home/consumption/what-is-behavioral-economics/">psychologists and economists </a>have found examples of heuristics that cause people to get things wrong over and over again. </p>

<p><strong>Knowing about these systematic errors can help us make better decisions </strong>. But it can also be used by governments or businesses to ‘nudge’ people into making certain decisions, like saving for retirement or buying particular things in the grocery store. </p>

<p>The number of different cognitive biases is pretty massive—Wikipedia lists about 175 of them.¹ Here are three of the most famous: </p>

<ol><li><div>List of cognitive biases, Wikipedia, 2017 </div><div><a href="https://en.wikipedia.org/wiki/List_of_cognitive_biases">https://en.wikipedia.org/wiki/List_of_cognitive_biases </a> </div> </li><li><div>20 Cognitive Biases That Affect Your Decisions, Jennifer M Wood, 2015 </div><div><a href="http://mentalfloss.com/article/68705/20-cognitive-biases-affect-your-decisions">http://mentalfloss.com/article/68705/20-cognitive-biases-affect-your-decisions </a> </div> </li><li><div>The Behavioral Economics Guide, Alain Samson, 2015 </div><div><a href="http://www.behavioraleconomics.com/BEGuide2015.pdf">http://www.behavioraleconomics.com/BEGuide2015.pdf </a> </div> </li><li><div>Mind Over Money. Can markets be rational when humans aren’t? , NOVA, 2010 </div><div><a href="http://www.pbs.org/wgbh/nova/body/mind-over-money.html">http://www.pbs.org/wgbh/nova/body/mind-over-money.html </a> </div> </li><li><div>Misbehaving: The Making of Behavioral Economics, Richard Thaler, 2015 </div><div><a href="https://www.amazon.com/Misbehaving-Behavioral-Economics-Richard-Thaler/dp/039335279X">https://www.amazon.com/Misbehaving-Behavioral-Economics-Richard-Thaler/dp/039335279X </a> </div> </li><li><div>Neuroeconomics, Judgment, and Decision Making , Evan Wilhelms and Valerie Reyna , 2014 </div><div><a href="https://www.amazon.com/Neuroeconomics-Judgment-Frontiers-Cognitive-Psychology/dp/1848726600">https://www.amazon.com/Neuroeconomics-Judgment-Frontiers-Cognitive-Psychology/dp/1848726600 </a> </div> </li><li><div>Thinking, Fast and Slow, Daniel Kahneman, 2011 </div><div><a href="https://www.amazon.com/Thinking-Fast-Slow-Daniel-Kahneman/dp/0374533555/ref=sr_1_1?s=books&amp;ie=UTF8&amp;qid=1487635639&amp;sr=1-1&amp;keywords=Thinking%2C+Fast+and+Slow">https://www.amazon.com/Thinking-Fast-Slow-Daniel-Kahneman/dp/0374533555/ref=sr_1_1?s=books&amp;ie=UTF8&amp;qid=1487635639&amp;sr=1-1&amp;keywords=Thinking%2C+Fast+and+Slow </a> </div> </li> </ol>

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Heuristics: Mental Shortcuts

Cognitive Bias: The Other End Of Heuristics

The Most Common Cognitive Biases

What is 'rationality'? - Economy

Economic rationality

'Rational choice theory' and 'Bounded rationality theory'