Decision Making: Heuristics, Biases, and Bounded Rationality

This essay delves into the cognitive processes involved in decision-making, focusing on the role of heuristics and biases. It begins by defining heuristics as mental shortcuts that enable quick judgments, particularly in complex situations, while acknowledging that these can lead to suboptimal solutions. The essay then explores the influence of psychological biases, both conscious and unconscious, on the accuracy of decision-making. Key concepts such as availability heuristics, which rely on readily available information, and representativeness heuristics, which involve comparing problems to psychological prototypes, are examined. The concept of bounded rationality, which highlights the limitations of human rationality, is also discussed. The essay concludes that a more rational approach, considering biases and heuristics, is crucial for enhancing problem-solving abilities.

The capacity of the human
mind for formulating and
solving complex problems is
very small compared with the
size of the problems whose
solution is required

TABLE OF CONTENT
INTRODUCTION...........................................................................................................................1
Heuristics and bias involved in decision making ............................................................................1
Availability Heuristics ................................................................................................................1
Representative Heuristics ............................................................................................................2
Bounded Rationality ...................................................................................................................2
CONCLUSION ...............................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Heuristics is defined as the technique or the methodology which allows individuals to
make quick judgements and to take quick decisions especially in complex circumstances. The
heuristic approach helps in making decisions quickly and in desired framework of time but it
may not deliver optimal solutions. The efficacy of decision making processes is also influenced
by various psychological biases (Pogarsky, Roche and Pickett, 2017). The biases can be
conscious as well as unconscious which disrupt the objective contemplation of decisions
affecting their accuracy and judgmental process. The essay will provide an analysis of various
concepts which affects the decision making in the complex problems and capability of human
mind in context of rationality statement given by Simon.
Heuristics and bias involved in decision making
Bias is known to be predetermined psychological notions and assumptions which affects
the perspective and behaviour of individual. Thus whether learned or innate biases leads to close
minded or unfair decisions. With the bias individuals tends to develop conclusions on the basis
of prejudice and opinions without actually following any rational procedure. The heuristics
shorten the time to take decisions as they provide strong ground rules for the clinical judgments
but at the same time they also produces cognitive biases. The decisions making processes which
rely on using heuristics are also considered as cognitive laziness.
With the help of heuristics mental efforts are also reduced in taking decisions thus there
are high possibilities of biasing in solving problem. With the complex problems it is not possible
for the brain to analyse each and every single aspect of the issue (Grasas and et.al., 2017). Thus
specific mental strategies or heuristics allows to minimise these efforts to provide specific
solutions to the problems on the basis of specific strategies. However use of existing heuristics
for solving problems can develop prejudices and stereotypes and can prohibit individuals to
search for alternative solutions for solving a complex problems. Heuristics are also applied as
quick remedies for complex decisions as they can act as helpful tool in weighing alternatives and
conducting analysis.
Availability Heuristics
One of the most common approach to make decisions is on the basis of facts that how
easily the problem or create something in our mind. Such types of strategy or heuristic is known
as availability heuristics. When people try to make any decisions or solve problem then they
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recall various types of information or relevant examples which are already available in the
memory. With the available information the outcomes of the problem are critically judged as
they are quite frequent for the brain (Lieder, Griffiths and Hsu, 2018). For instance when a
person thinks about flying and air plane crashes then due to availability and recalling of air
disasters they may decide that air travelling is dangerous. Thus the pre-existing information
about air-plane crash makes them more common than actually they are. Availability heuristics
are one of the strong reason which leads to illusory correlations in which individuals two
problems or events are wrongly evaluated or assumed to have any kind of association. The ease
of imagining two events simultaneously leads to the inaccurate correlation.
Representative Heuristics
Another type of heuristic is known as representativeness heuristic in which problem is
compared with the most representative psychological prototype for making decision. There are
instances when individuals makes decisions on the basis of comparative outputs which may not
be logical or validate and include bias. For example while taking decision on trustworthiness of
an old man, one may remind their personality with his grandfather. Thus individual may assume
that the old man is also trustworthy and kind. The reason for taking such decision is that the
characteristics of the old man matches the psychological prototype of grandfather and thus
decisions are based upon these prototypes (Artinger and et.al., 2015). This type of heuristic is
basically used to categorise individuals but in most of the cases individuals overestimate or
underestimate the possibilities of likelihood of event. Thus base rate fallacy is one of the
disadvantage or drawback in decisions taken with the help of representative heuristics. On many
occasions it also explain the cause effect relationship between two variables and thus bias
decisions may produce when incorrect relationships are determined.
Bounded Rationality
The concept of bounded rationality is considered as the negative of global rationality. The
degree of rationality is limited among individuals and thus for effectively dealing with the world
collaboration with other organisations and groups is necessary. While making decisions simple
thumb rules or heuristics are used by individuals so that complex interrelationships of the world
can be neglected and decisions can be made. The information used for making decisions is
bounded by the availability of the information as well as on computational capacity of the
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individuals. The decision making process is associated with the satisfactory results instead of
optimum outcomes.
At theoretical level decision making process recognises limitation of human rationality
within organisations while at practical level surrounding environment is designed in way such
that it helps in bringing more practicalness and rationality in the decisions (Blumenthal-Barby,
2016). The bounded rationality is produced as the result of human cognitive capabilities as well
as complexity of systems. The perception and knowledge of individuals, time, deduction and
inference powers are also considered as the vital factors which influence decisions. These factors
also limits decision making capability as per the concepts of optimisation theory.
CONCLUSION
It can be concluded that decision making process is characterised by behavioural and
personal traits of individuals. The subjective and cognitive bias factors can easily disrupt the
objective judgments and ability of individual to solve complex problems. It has been also
analysed that in order to enhance the decision making and problem solving ability of individuals
concepts of bounded rationality and heuristic approaches play significant role in rational and
irrational judgments. It can also be concluded from the essay that to fully explore the capabilities
of human mind a more rational approach which takes account of biases and heuristics is
required. It will help to solve objectively rational and complex behaviour.
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REFERENCES
Books and Journals
Artinger, F. and et.al., 2015. Heuristics as adaptive decision strategies in management. Journal of
Organizational Behavior. 36(S1). pp.S33-S52.
Blumenthal-Barby, J.S., 2016. Biases and heuristics in decision making and their impact on
autonomy. The American Journal of Bioethics. 16(5). pp.5-15.
Grasas, A. and et.al., 2017. Biased randomization of heuristics using skewed probability
distributions: a survey and some applications. Computers & Industrial Engineering. 110.
pp.216-228.
Lieder, F., Griffiths, T.L. and Hsu, M., 2018. Overrepresentation of extreme events in decision
making reflects rational use of cognitive resources. Psychological review. 125(1). p.1.
Pogarsky, G., Roche, S.P. and Pickett, J.T., 2017. Heuristics and biases, rational choice, and
sanction perceptions. Criminology. 55(1). pp.85-111.
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