Chapter 107 The Recognition Heuristic: A Fast and Frugal Way to Investment Choice?

Ortmann, Andreas; Gigerenzer, Gerd; Borges, Bernhard; Goldstein, Daniel G.

doi:10.1016/s1574-0722(07)00107-2

Cited by 56 publications

(35 citation statements)

References 7 publications

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“…The advantage of the recognition portfolio was most visible where ignorance was highest, that is, in international recognition, specifically for U.S. citizens' name recognition of German stocks. Further tests of the recognition heuristic in stock-picking contests led to comparable results (Ortmann et al 2008).…”

Section: Decision Making In Dynamic Environmentsmentioning

confidence: 89%

Heuristics are Tools for Uncertainty

Mousavi

Gigerenzer

2017

Homo Oecon

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Heuristics are commonly viewed in behavioral economics as inferior strategies resulting from agents' cognitive limitations. Uncertainty is generally reduced to a form of risk, quantifiable in some probabilistic format. We challenge both conceptualizations and connect heuristics and uncertainty in a functional way: When uncertainty does not lend itself to risk calculations, heuristics can fare better than complex, optimization-based strategies if they satisfy the criteria for being ecological rational. This insight emerges from merging Knightian uncertainty with the study of fast-and-frugal heuristics. For many decision theorists, uncertainty is an undesirable characteristic of a situation, yet in the world of business it is considered a necessary condition for profit. In this article, we argue for complementing the study of decision making under risk using probability theory with a systematic study of decision making under uncertainty using formal models of heuristics. In doing so, we can better understand decision making in the real world and why and when simple heuristics are successful.

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Section: Decision Making In Dynamic Environmentsmentioning

confidence: 89%

Heuristics are Tools for Uncertainty

Mousavi

Gigerenzer

2017

Homo Oecon

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“…In three studies on predicting the stock market, Ortmann et al (2008) reported that recognition-based portfolios (the set of most-recognized options), on average, outperformed managed funds such as the Fidelity Growth Fund, the market (Dow or Dax), chance portfolios, and stock experts. In contrast, Boyd (2001) found no such advantage when he used college students' recognition of stocks rather than that of the general public.…”

Section: Investmentmentioning

confidence: 99%

Heuristic Decision Making

Martignon

Gaissmaier

2011

Annu. Rev. Psychol.

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As reflected in the amount of controversy, few areas in psychology have undergone such dramatic conceptual changes in the past decade as the emerging science of heuristics. Heuristics are efficient cognitive processes, conscious or unconscious, that ignore part of the information. Because using heuristics saves effort, the classical view has been that heuristic decisions imply greater errors than do "rational" decisions as defined by logic or statistical models. However, for many decisions, the assumptions of rational models are not met, and it is an empirical rather than an a priori issue how well cognitive heuristics function in an uncertain world. To answer both the descriptive question ("Which heuristics do people use in which situations?") and the prescriptive question ("When should people rely on a given heuristic rather than a complex strategy to make better judgments?"), formal models are indispensable. We review research that tests formal models of heuristic inference, including in business organizations, health care, and legal institutions. This research indicates that (a) individuals and organizations often rely on simple heuristics in an adaptive way, and (b) ignoring part of the information can lead to more accurate judgments than weighting and adding all information, for instance for low predictability and small samples. The big future challenge is to develop a systematic theory of the building blocks of heuristics as well as the core capacities and environmental structures these exploit.

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“…When they obtained this information they created two portfolios: first, with the most recognized brands, and second, for control purposes, with 10 least recognizable ones. The first portfolio generated a profit of 2,5 %, and was a better result than 88 % of all contestants, while the second took a loss of 18,5 % which was as huge as loss of Capital's editor's-in-chief portfolio [25].…”

Section: Recognition Heuristicmentioning

confidence: 92%

Simon's Puzzle: Heuristics in the Process of Making Political Choices

Wajzer¹,

Tymoteusz²

2014

: Interdiscip. Descr. Complex Syst.

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In this article we analyse one of the most fascinating paradoxes of mass politics. Based on the data from the studies of neurobiologists, neurologists, social psychology, cognitive and evolution studies we answer the question specified in literature as the Simon's puzzle: How is it possible that citizens have their opinions about politics, if they know so little about it? We began our analysis from the criticism of the economic rationality approach. To do this, we referred to the Allais paradox, cognitive dissonance theory, Ellsberg paradox, the concept of bounded rationality, conjunction fallacy and prospect theory. Next, we described the evolutionary processes shaping the minds of Homo sapiens and characterised cognitive mechanisms, thanks to which people can make political choices, especially in view of the shortage of time and information. The following heuristics are referred to herein: affect, recognition, judgment and imitation.

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Chapter 107 The Recognition Heuristic: A Fast and Frugal Way to Investment Choice?

Cited by 56 publications

References 7 publications

Heuristics are Tools for Uncertainty

Heuristics are Tools for Uncertainty

Heuristic Decision Making

Simon's Puzzle: Heuristics in the Process of Making Political Choices

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