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

Abstract

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

Schwartz, Hugh H., Heuristics (Rules of Thumb) (November 15, 2010). BEHAVIORAL FINANCE: INVESTORS, CORPORATIONS, AND MARKETS, Chapter 4, H. Kent Baker, John Nofsinger, eds., John Wiley and Sons, October 2010. Available at SSRN: https://ssrn.com/abstract=1709550

Hugh H. Schwartz (Contact Author)

Independent ( email )

5902 MOUNT EAGLE DR
APT 1004
ALEXANDRIA, VA 22303-2519
United States

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