## Heuristic

A heuristic is a strategy that can be applied to a variety of problems and that usually –
but not always – yields a correct solution. People often use heuristics (or shortcuts) that
reduce complex problem solving to more simple judgmental operations. Three of the most popular
heuristics are discussed by Tversky and Kahnemann (1974):
**Representativeness heuristic:**
What is the probability that person *A* (Steve, a very shy and withdrawn man) belongs to group
*B* (librarians) or *C* (exotic dancers)? In answering such questions, people typically evaluate
the probabilities by the degree to which *A* is representative of *B* or *C* (Steve´s shyness seems
to be more representative for librarians than for exotic dancers) and sometimes neglect base
rates (there are far more exotic dancers than librarians in a certain sample).

**Availability heuristic:**
This heuristic is used to evaluate the frequency or likelihood of an event on the basis of
how quickly instances or associations come to mind. When examples or associations are easily
brought to mind, this fact leads to an overestimation of the frequency or likelihood of this
event. Example: People are overestimating the divorce rate if they can quickly find examples
of divorced friends.

**Anchoring and adjustment:**
People who have to make judgements under uncertainty use this heuristic by starting with a
certain reference point (anchor) and then adjust it insufficiently to reach a final
conclusion. Example: If you have to judge another person´s productivity, the anchor for
your final (adjusted) judgement may be your own level of productivity. Depending on your
own level of productivity you might therefore underestimate or overestimate the productivity
of this person.

**See also:**
behavioral finance,
biased reconstruction

**Literature:**
Kahneman, Slovic & Tversky (1982),
Fiske & Taylor (1991)