Heuristics (Rules of Thumb)
BEHAVIORAL FINANCE: INVESTORS, CORPORATIONS, AND MARKETS, Chapter 4, H. Kent Baker, John Nofsinger, eds., John Wiley and Sons, October 2010
Posted: 16 Nov 2010
Date Written: November 15, 2010
This chapter provides an overview of heuristics, shortcuts that reduce the search necessary to find a solution to a problem. It notes that initially, studies of heuristics dealt almost exclusively with cognitive processes, but they have come to incorporate emotional factors as well. Heuristics differ from strictly rational modes of choice, endeavoring to take account of choice in real world contexts, and to categorize the deviations from traditional rational choice. The chapter deals with specific as well as general heuristics, including what have been termed fast and frugal heuristics. Attention is given to both the strengths and weaknesses of heuristics.
Keywords: Heuristics, biases, behavioral econonomics, representativeness, availability, anchoring and adjustment, specific heuristics, the affect heursitic, Kahneman and Tversky, Slovic
JEL Classification: D00, D81, M21, Z00
Suggested Citation: Suggested Citation