The Beauty of Simplicity? (Simple) Heuristics and the Opportunities Yet to Be Realized

34 Pages Posted: 16 Oct 2015 Last revised: 20 Oct 2015

See all articles by Andreas Ortmann

Andreas Ortmann

UNSW Australia Business School, School of Economics

Leonidas Spiliopoulos

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Human Development

Date Written: October 12, 2015

Abstract

Heuristics are all around us, both in the real world and the literature. There are many of them and there are many — too many — definitions of them. In this chapter we focus on the history of fast and frugal heuristics, as sketched out comprehensively in Gigerenzer, Todd, & the ABC Research Group (1999) and scores of follow-up books. Specifically, we contextualize the emergence of the “Ecological-Rationality” program as an explicit counterpoint to the “Heuristics-and-Biases” program initiated by Kahneman and Tversky that informed and inspired scores of early behavioural economists. Simple heuristics are here understood to be fast and frugal rules of thumb because they ignore information that is available. Also, they ought to reflect cognitive processes (and hence be able to predict) rather than be as-if modelling exercises that explain ex post. We first review in more detail how this battle of programs unfolded and then a) lay out what we consider the considerable accomplishments of the ER program, b) point out some overlooked connections between the ER program and economics, and c) enumerate what we consider to be open questions and challenges.

Keywords: heuristics, simple heuristics, simplicity, model selection, beauty

JEL Classification: B20, B41, C02, C18, D01, D03

Suggested Citation

Ortmann, Andreas and Spiliopoulos, Leonidas, The Beauty of Simplicity? (Simple) Heuristics and the Opportunities Yet to Be Realized (October 12, 2015). UNSW Business School Research Paper No. 2015-25, Available at SSRN: https://ssrn.com/abstract=2673267 or http://dx.doi.org/10.2139/ssrn.2673267

Andreas Ortmann (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Leonidas Spiliopoulos

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Human Development ( email )

Lentzeallee 94
D-14195 Berlin, 14195
Germany

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