BoundedRationality_TheAdaptiveToolbox.pdf

88 Abdolkarim Sadrieh et al
Most imaginable and practicable heuristics will not produce superior results,
but even those fast and frugal heuristics that have been shown experimentally
and/or theoretically to be successful and robust (see Gigerenzer, Todd, and
Martignon, all this volume) can sometimes perform quite poorly. The recognition
heuristic, for example, can lead to suboptimal results when it is used to support
private savings decisions. A decision maker following the rule typically
ends up holding a portfolio that contains too many assets closely correlated with
the current source of income. Instead of diversifying the joint risk of income and
savings (i.e., buying assets from diverse countries and industries), investors using
the recognition heuristic buy assets of their own home region or even of their
own company. This type of investment behavior is often referred to as the "home
bias" (see, e.g., Kilka and Weber 1997).
The question of the extent to which certain simple heuristics have been
brought forth by the evolution of human beings is not yet well investigated. The
"Follow the Expert" heuristic, for example, may have evolved from a "Follow
the Leader" heuristic, which was adapted to hunting and gathering societies.
Similarly, scenarios are conceivable that explain the evolution of the recognition
heuristic, and thus, of the "home bias." However, at present, no coherent theory
can account for the evolution of the heuristics used by human decision makers.
This remains an important topic for future research.
Finally, it is still largely unknown whether individuals have methods for testing
how well their heuristics toolbox is working. The conjecture is that the
greater the distance between one's own payoff and the payoff of one's peers, the
more likely it is that the quality of the heuristic is recognized. Notice, however,
that in benevolent but heterogeneous environments, superstitious heuristics can
be learned in this way. For example, an individual occupying a position with a
more favorable environment than his peers may repeatedly experience relative
successes that are only spuriously correlated to the heuristics used (see also the
discussion on social learning by Mellers et al., this volume).
In summary, the evidence on the use of heuristics by human decision makers
is quite impressive. The financial asset markets alone offer a multitude of examples
about how decisions can be guided by heuristics. The evidence, however,
on which heuristics are actually being used by decision makers in which situations
is not yet very reliable.
HOW DO THE RULES IN THE ADAPTIVE TOOLBOX
RELATE TO OUR ENVIRONMENTAL ARTIFACTS?
An artifact in the context of this section is taken to be a human-made object designed
to help achieve a goal. Hence, artifacts are seen as entities devised to enhance
human capabilities, including cognitive capabilities. This implies that
artifacts enable human beings to use complicated decision processes. They can,
in principle, help human decision makers use all available information in a