Chapter 3 Chapter 2 "Bounded Rationality" Decision-Making and Lifestyle

Out of 100 people to date, which one is your ideal life partner? Intuition refers to the ability to find characteristic and representative examples in reality.It is difficult to find a more appropriate term in translation, and it can be understood as a judgment method related to approximate estimation for the time being.Because the actual situation is very complicated to judge, in order to simplify things, people may adopt the principle of approximate estimation, which is the "heuristic method". No matter how rigorous a person is, it is impossible to read the "Encyclopedia" or use a calculator to calculate everything.Because this approximation, known as a “heuristic,” can be applied so easily, we feel less compelled to live in such a rigid way.

There is an opportunity cost in calculating all the circumstances before taking action.Not only does it take time, it also takes a lot of energy.Because of this, non-essential things can be dealt with using heuristics.Not because there is no ability or desire for precise calculations, but because it is economical to apply heuristics. If you don't have the ability to do precise calculations, you can also rely on heuristics.We are neither Einsteins nor computers, so we do not have the capacity to process all the information relevant to choice.We only have limited cognitive ability, information and knowledge reserves, and in most cases, we can only rely on heuristics to deal with problems.We use this method unconsciously.In fact, many unsolvable problems in daily life are finally solved by heuristics.

Heuristics are widely used, which is also a generally recognized fact in the field of psychology.However, there are two distinct views on heuristics.One is that heuristics play an active role in our lives as effective means of replenishing intelligence or information deficiencies.Many research results show that judging the surrounding situation and making decisions based on heuristics will yield unexpected results. In contrast, the heuristic method also has a negative side—the one-sidedness of cognition, that is, the heuristic method prevents people from knowing things objectively, and thus draws conclusions with colored glasses.The behavioral economics presented in this book takes this view.Judging the people around you based on the heuristic is as irrational as the economic man, which is the basic position of behavioral economics.

In this chapter, several specific examples of the application of the heuristic are given.The first two examples regard heuristics as negative, because the judgments made according to the heuristics are the main reason that prevents objective understanding of things.On the contrary, the latter two examples reveal that heuristics play an active role in our lives.In both cases, the heuristic simplifies complex decisions and achieves better results. The high school classmates who had been reunited for a long time - Yingzhu and Shuping were chatting with relish once they forgot the passage of time.Yingzhu hesitated as if she had something to say, Shuping finished all the words first, and then said: "Oh, don't worry, just talk freely." Yingzhu hesitated, and said that she was in the stage of being in love recently . "Wow, that's great, what does he do?" Yingzhu didn't seem to want to say, but just said the following insincere words:

"He should be a serious and honest person. He doesn't panic when things happen, and he can deal with them calmly. He is also very good at craftsmanship. Every time we meet, he will bring some small gifts made by himself. He is a bit introverted and not a talkative person. , but not the kind of boring person." Based on the above description, Shuping should be able to infer this person's occupation.Bank clerk, engineer, athlete, or soldier?If you were Shuping, which one would you think it was?According to psychologists' research, in this case, most people will infer the person's occupation according to the following heuristics.

There is a certain consensus about what is typical of a person in a particular occupation.For example, bank clerks are generally more careful, athletes are mostly bold, and soldiers are generally very restrained in speech and behavior.The heuristic most people use is to infer that person's occupation based on this consensus.In other words, the above description is a consensus among people on the typical characteristics of a particular occupation, through which it can be more accurately inferred what kind of occupation someone is engaged in. This method is the representational heuristic.In retrospect, readers will feel that they use this method often.It is not necessarily simply used to infer occupations. In many situations where only approximate information is known, representative heuristics are often used when inferring what kind of thing an entity is.

However, there may be serious misjudgments in the judgments based on representativeness heuristics.After reading the experimental results below, you will understand the meaning of this sentence.In the first stage of the experiment, a person was randomly selected from a group including 70 engineers and 30 soldiers. Under the condition of knowing the typical characteristics of the occupation, the testees would hear a description of that person. (For convenience, assume that the description of that person is exactly the same as the description of Yingzhu's boyfriend we saw earlier.) Just ask, what is the probability that the testee thinks he is an engineer.

In the next stage, change the composition ratio of the group, and the number of soldiers is larger, that is, the group is composed of 30 engineers and 70 soldiers. After knowing this fact, the subjects are asked to guess the occupation of a randomly selected person. , this time the description of that person is exactly the same as the previous situation.Just ask, what is the probability that the testee thinks he is an engineer. The results of the experiment showed that almost all the subjects believed that the person extracted from the two-stage experiment was an engineer.These two probabilities are exactly the same, that is, in the second experiment group, although the proportion of engineers is greatly reduced, the probability of being an engineer is still exactly the same as in the first experiment.However, this is a completely wrong judgment.The probability that the randomly drawn person is an engineer in the first case should be higher than in the second case.

After listening to the description of a person's typical characteristics, when inferring the person's occupation, the method of making a judgment based on this typical characteristic.Sometimes there is also the possibility of serious miscalculation. Randomly draw a person from a group that contains more engineers, this person should have a higher probability of being an engineer.One person is randomly selected from two groups with different proportions of engineers, and it is speculated that the probability that he is an engineer cannot be exactly the same.Even if the description of the person is exactly the same twice, the probability that he is an engineer should be higher in the first case than in the second case.Anyone with a little knowledge of statistics can understand this.

According to the calculation of the law of probability, the probability of an engineer in the first case is 5.44 times that of the second case, or even higher.There is such a large difference in probability in theory that people don't realize it.Why is this so?Because people only pay attention to the description about the typical characteristics of that person.Therefore, the relevant underlying theory of probability will not be considered. At the same time, other experiments have also shown that this representative heuristic has the possibility of misjudgment.The experiment begins with the following characterization of a person:

Kim Youngmin is a 31-year-old unmarried youth with an outgoing personality.When I was in college, I majored in philosophy and participated in various student activities.He is very concerned about social issues. Every summer vacation, he goes to the countryside to do voluntary labor. The following can be inferred from this description: (1) Kim Young-min is a bank employee. (2) He supports environmental protection. (3) Kim Young-min is a bank employee and also supports environmental protection. The last stage is to ask the subjects to arrange the above three narratives about Kim Young-min in descending order of probability.It turns out that the probability of the first narrative is quite high.Because the testees think that people who study philosophy in Korea and pay attention to social issues are very suitable for bank employees.Likewise, the second proposition seems plausible.Every summer vacation, I go to the countryside to participate in voluntary labor, and I am very concerned about social issues. It seems that the probability of supporting environmental protection is also very high. The problem, however, is the narrative (3) that combines the first two factors.Especially in (1) and (3), it is necessary to think carefully about which narrative is more likely.If you were a reader, what kind of answer would you like to see in this situation?It is very likely that (3) is more likely to be judged than (1).I believe that the probability of this conjecture being correct is at least more than 80%.Because in the same experiment, more than 80% of the subjects answered this way. As readers, the reason why most people think (3) is more likely than (1) is actually very simple. Because (3) contains Kim Young-min’s support for environmental protection.People who pay attention to social issues are likely to support environmental protection. Affected by this general idea, people will conclude that the probability of (3) is higher.We can say that the representativeness heuristic played an important role in arriving at such a judgment. However, according to the point of view of probability theory, no matter what the circumstances, (3) cannot be more likely than (1).When no subjective judgment is involved at all, it is obvious that (1) has a higher probability than (3).The probability that Kim Young-min supports environmental protection is very high, but this probability cannot reach 100%.Therefore, the probability of "being a bank employee who also supports environmental protection" can only be lower than the probability of "just being a bank employee". For example, the probability of Kim Young-min in (1) is 20%, and the probability of (2) is 70%.Then, the probability of (3) combining (1) and (2) cannot exceed 14%.People ignore such simple and clear laws of probability and fall into the trap of making gross miscalculations based on representativeness heuristics.If college students from prestigious schools are used as test subjects, and then look at the results of this experiment, the rate of misjudgments may even rise from 80% to 90%.It seems that learned people can hardly escape the trap of representational heuristics. Shang Zhenyi and Chen You, who listened to the "Healthy Life" lecture together, believed that if one day South Korea began to discuss the causes of human death, cancer must be ranked first.Because it often appears in various media reports, and it is often mentioned in lectures.The question is what is the second reason?The two disagreed on this, and got into an uncompromising argument. None of them saw the official statistics on why people died and just used their own judgment to determine the order of causes of death.Shang Zhenyi firmly believes that traffic accidents should be the second cause of death.Because he remembered that the number of people who died in traffic accidents was announced every year in the news, and there were also many people who died in traffic accidents around him.Especially since junior high school, several people who were very good friends died in traffic accidents a year. He believed that after such a terrible event as a traffic accident, the number of people who died in traffic accidents would increase unexpectedly. On the contrary, Chen You firmly believes that heart disease is the second cause of death for people.A few years ago, his grandfather died of a sudden heart attack. At that time, he first realized how terrible heart disease is.I remember that a few years ago, his teacher in high school passed away, and the cause of death was also a heart attack.From this point of view, compared with traffic accidents, there is no doubt that heart disease is a more important cause of death. Both men used the availability heuristic to speculate on the second cause of death, and they both base their judgments on events or situations with which they were familiar.The availability heuristic gets its name because it draws inspiration from existing memories.When judging with this method, in any case, you will search the existing memory first in order to make a judgment. In fact, people have their own reasons for judging in a similar way.If traffic accidents are considered to be an important cause of death, it is likely that a large number of people are known and remembered to have died in traffic accidents.The easier an event comes to mind, the more likely it is to be considered frequent.We often make judgments based on our daily experience, so we use the availability heuristic as a useful means of judgment. However, psychologists point out that the availability heuristic may also be misjudged.For example, two recurring events are likely to leave impressions of varying degrees.Generally speaking, events related to familiar scenes are easier to retain in memory, and frequently occurring events may not easily appear in memory.The opposite also exists. After reading the following experimental results, you will understand the meaning of the above sentence.First, the subjects were provided with several lists containing the names of a certain number of well-known people.Famous people were split 1/2 on each list, however, the gender split of the most famous people varied from list to list.After reading it, which list contains more men or women? Interestingly, the gender ratio of very high-profile people included in the list affected the answers.For example, most of the very well-known people in some lists are men. In this case, even if the proportion of men and women in the list is 50%, the testees will draw the conclusion that there are more men according to their memory.Because well-known people tend to come out of memory, it will affect the judgment result.Clearly, it is the availability heuristic that leads to misjudgments. A method of making judgments based on available memory, that is, events or situations in one's own memory.This availability heuristic is also subject to misjudgment. Let’s go back to the example of the cause of death mentioned above. In actual records, the second cause should be a traffic accident, and the third cause should be a heart attack.Chen You, who judges according to the availability heuristic, has beliefs that are different from reality.Shang Zhenyi's answer is correct, but this is most likely the result of luck.Because the availability heuristic would lead him to answer differently if his past experience had been different. Section Chief Park of Company A has never had a successful relationship because he is so focused on his career.One day, he wanted to find a spouse through a blind date, so he found a marriage agency.He made appointments with 100 women with the best conditions in the marriage agency, and then went on blind dates one by one every weekend.He is a very greedy person, and he wants to pick out the most satisfactory person from these 100 women to continue dating. Even if these 100 women are put together for comparison, it is difficult to pick the most satisfactory one.And Section Chief Park has to go on blind dates one by one, so sometimes even he himself can't remember the characteristics of the women he has seen before.Not only that, if there is a woman on a blind date in front of him, and he feels very satisfied afterwards, it is impossible for him to go back and have a relationship with her.Therefore, a clear judgment must be made at that time.In a word, it is impossible to draw such a conclusion during the blind date: "Yes, this is the person." Statisticians believe that Section Chief Park’s current situation should be considered as a typical example of the “dowry problem.”To illustrate the content of the "dowry problem", let's take an example: a sultan in Arabia decided to test how smart his subordinates were.The sultan asked each of these unmarried men to meet 100 women and ordered them to choose the woman with the most dowry as the object of marriage.Judge the intelligence of your subordinates according to how well they can execute the order. The sultan promised his subordinates that whoever successfully selected the woman with the largest dowry would be rewarded heavily.The sultan believed that in this way the superior intelligence of his subordinates could be recognized.Instead, those who did not succeed were beheaded on the spot.The sultan, known for his cruelty, would not only not reward his subordinates if they were even slightly dissatisfied, but would push them out for beheading.If readers are his subordinates, what strategy should be adopted to deal with this crisis?This is the basic framework of the "dowry problem". His subordinates had no idea how much dowry each of these 100 women had.There is no other way but to meet one of them a day and find out how much bitch makeup they have.Yuru learned that the 25th woman she met had a lot of dowry, but she could not be chosen as a marriage partner, because there might be someone with more dowry among the remaining 75 people.When the 100 women have met, the correct answer is known, but because you can't go back to the women you met before, it doesn't help. This "dowry problem" has a correct answer.In other words, if a certain strategy is adopted, the probability of survival of the subordinates will be relatively the highest.The answer statisticians came up with is known as the "rule of 37%" strategy.If you choose this strategy, it means that the probability of survival is the highest.The strategy is to first select 37 of the 100 women to meet, and be sure to remember what the most dowry among them is.Then, starting from the 38th woman, meet in turn, and compare while meeting, and if you meet the woman with the most dowry than the top 37, you should immediately choose her as the marriage partner. Interestingly, even with this strategy, the minion had only a 37% chance of surviving.Therefore, the probability of his being beheaded is 63%.But this is already the maximum probability of survival.Had a different strategy been employed, the chances of his beheading would have been greater.If this subordinate is a completely rational person, then it can be speculated that he will definitely adopt the "37% rule". It should be noted that this "dowry problem" is an extreme simplification of the choice of spouse.Section Chief Park's issue of choosing a spouse is more complicated than that.In the "dowry problem", the selection condition is only the dowry, but in the process of choosing a spouse, there are more than one or two conditions that need to be considered. When there are many conditions to be considered, such as personality, appearance, education, family background, etc., the probability of selecting a suitable spouse from 100 candidates is almost zero. At the same time, meeting spouse candidates one-by-one in the "dowry problem" does not take into account the time, effort, or expense expended.But in reality, the cost is definitely not low.If you're meeting and dating every single one of those 100 women, there's a good chance you're missing the perfect age to get married.Because of this, even if you want to find a better partner, you can't spend endless time.The problem of picking out the most satisfied women becomes more complicated when cost is factored in. Not only that, if Section Chief Park is very satisfied with the other party, but whether the other party hates him is still unknown, this is also a problem.In the "dowry problem", just choose the woman with the most dowry, and there is no need to consider whether that woman likes this subordinate.However, the woman whom Section Chief Park is most satisfied with dislikes Section Chief Park. This is not an ordinary problem. Finding the right answer to the spouse question can be very difficult because there are so many factors that must be considered in reality.Even if there were a reasonable way to help Section Chief Park choose the most satisfactory spouse candidate, it would require very complicated calculations.There are very few people in the world who have the ability to calculate this result, not to mention many people have never heard of the "37% rule". If such a genius exists, he can give Section Chief Park some guidance.However, even if you teach him this rule, it is not an easy task to implement it step by step.Because the problems are complex, even with a reasonable strategy, it is still difficult to execute.The average person does not even have the ability and the patience required to follow that method earnestly. Although Section Chief Park wanted to pick out the most satisfied woman, it was an impossible dream.Because it is impossible for the limited rationality of human beings to find a way to realize that dream.In reality, only when there is love at first sight can you feel the most satisfied.Moreover, the method of love at first sight is itself a heuristic that is out of reason. A common heuristic we use when picking a mate is to see what makes each of us unique.Some people think that the feeling of meeting for the first time is very important, and it must reach the level of fascination at a glance.Some people think that only by meeting more can we determine whether the other party is satisfactory.That is to say, he doesn't think meeting once or twice can't know exactly every aspect of that person.Some people even take the advice of their parents as a heuristic. There are obviously all sorts of heuristics for readers to use when picking their ideal marriage partner.In real life, such important life issues as marriage can also be solved by heuristics.Not only marriage, but many other problems encountered in life can be solved in a similar way.The rational solutions mentioned in economics textbooks are too far away from real life. For those who plan to invest in stocks, experts offer this advice: First, they should carefully study the company's financial reports, understand the company's balance sheet, and pay attention to how the company's earnings have changed in the past 10 years.Then, listen to experts' outlook on the future economy.According to the development direction of our economy, predict the development prospect of this enterprise. However, how many people can really invest in accordance with the advice of experts?To be honest, most people are in favor of picking and buying stocks in other ways.Few people give priority to buying stocks according to the advice of experts, and they often don't look at financial statements and balance sheets, and they don't listen to experts' forecasts about the economy.In this world, only a very few people can really invest in accordance with the advice of experts. Many people, even if they have the ability to invest in accordance with the advice of experts, do not have the patience to do so. It is estimated that while listening to the advice of experts, there are many people who complain: "If that is the case, there are too many things to do. Where does the time come from to study the financial statements of the enterprise? Studying it can make the right investment. A word?" In short, most people have neither the ability nor the will to invest on the advice of experts. Almost everyone has their own secret to investing in stocks.For example, buy stocks whose stock prices have an upward trend, buy stocks whose stock prices have fallen sharply recently, or buy stocks whose stock prices have fluctuated greatly, and so on.Are these methods correct?I'm afraid it will be difficult to give a logical and systematic answer.At most, you get an answer like this: "Ah, I used that method to make a small profit before." The way of roughly estimating and then making choices like this is the best example of heuristics. One of the heuristics used by stock investors has attracted the attention of psychologists, which is to decide whether to buy stocks based on the popularity of the company, that is, to give priority to buying stocks of high-profile companies.Psychologists call this heuristic an "ignorance-based" approach.This means that it is an approximate approach to decision making. Interestingly, it's actually this ballpark approach to investing in stocks that makes people surprisingly do well on their investments.Experimental results show that this method is easier to obtain high profit margins than other investment methods.For example, it is obvious that investing in the stocks of high-profile companies will yield higher profit margins than investing in the stocks of less-known companies.Although it is just a simple heuristic, it also has considerable power.Even more astonishing is the fact that strategies that invest primarily in high-profile corporate stocks have higher returns than index funds or trust funds. There is a conclusion about stock investment that buying index funds is generally the wisest way to invest.Roughly estimated investment overthrows this conclusion, and it has a higher rate of return than index funds, which cannot but be said to be a surprising thing.At the same time, because trust investment is operated and managed by investment experts, it should have a higher rate of return.Ordinary people without any professional knowledge can only choose investment products through approximate estimation.It should be clear who wins and who loses between the two. However, there was an experimental result that was inconsistent with this expectation-the roughly estimated investment method won.What psychologists call "ignorance-based" investing trumps theories and dogma of experts. After reading this, you will know that the application heuristic is by no means just waiting blindly. When I was young, I was known by the nickname "F Bomber".If 150 students came to an introductory economics course and the teacher awarded F credit to 50 of them, that would be the nickname.The highest I can remember was 230 students taking a microeconomics course, 120 of whom got F credits.The strange thing is that at that time, none of the students came to the office to ask the teacher to improve their credits.And I became a "terrible person" as a matter of course. As I got older, the credits given to students increased, and my nickname became "CD Player," which means less F credits and more C or D credits.Not long after, my nickname changed to "The Rich".At that time, students gave the code name "rich" to teachers who gave more B and C credits, that is to say, I gave more B or C credits. Lately, I've started to worry about my nickname becoming "Credit Angel" because of the increase in the number of students getting A's and B's.Compared with other professors in the economics department, I think that I am by no means the kind of person who is stingy with grades.But until now, it seems that many students have left the impression of stingy grades.If you ask a graduate of the economics department who has never attended my course why he is like this, he will answer with embarrassment: "This is what the seniors say." Advice given by the course. Because the credits I gave started to improve a long time ago, at least now I get rid of the grading skimpy reviews.However, those senior students have not come to my courses so far, which means that they still insist on that evaluation.Do you have to give more A credits to change your impression of me?In that case, will I become an "angel of credits". Without changing my assessment, I can only explain it this way: there is an availability heuristic.That is, students rated me using the availability heuristic.Based on this, they have always maintained the impression that I am stingy in grading. Students consult senior students or friends who listen to my courses. If they make inferences based on the consultation results, they can accurately infer the distribution of my actual scores. Condition.But if that's the case, why does the availability heuristic rate me more meanly than I actually do? Students who listen to my courses should tell me, what kind of credits can they get to leave a deeper impression on their memory?This is not a complaint.For example, is it "I got an A" or is it complaining that the teacher gave me a C?I know the level of learning of the students, but few people think that getting C credits is because they are not motivated in their studies.Dissatisfaction ensued, as most students blamed the professors for stingy grades for their low grades. If considered from the student's standpoint, the dissatisfaction with low grades may leave a deeper impression.As a result, dissatisfaction can be long-lasting and likely to leave an indelible impression.In contrast, nothing is more likely to fade from memory than the situation of getting high grades, so those who make judgments based on the availability heuristic have the impression on me that the grades are rather stingy. If I personally attended my courses and got low grades, I would believe that impression now.Therefore, whenever someone asks about my course, I can always hear the firm statement: "If you take that course, you will regret it." In fact, the core of the problem is that the availability heuristic leaves students with mistakes belief.