Heuristics In Judgment And Decision-Making

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Heuristic Decision Making

James Taylor 0:00
I'm James Taylor and you're listening to the super creativity podcast a show dedicated to inspiring creative minds like yours. numbers don't lie that they often miss leaders from health risk to financial decisions. It can be hard to understand statistics because they are often presented to us by experts who misinterpret the data. In his book Risk Savvy, Professor GERD Gigerenzer shows us how we can make better decisions by becoming better-informed citizens and able to judge risk for ourselves. Professor Gerd Gigerenzer is Director of the Center for adaptive behavior and cognition at the Max Planck Institute for Human Development in Berlin, and former professor of psychology at the University of Chicago. He's the author of several best-selling books on heuristics and decision making, including reckoning with risk. In our discussion, we talk about heuristics and how your quest for certainty can hold you back from taking creative risks. Professor Gerd Gigerenzer's author shares why intuition on gut feeling has such a bad reputation in the business world, even though is essential for successful decision making in times of uncertainty. Enjoy the show. So Professor Gigerenzer, thank you so much for coming on the super creativity podcast, how are things going for you today?

Professor Gerd Gigerenzer 1:15
Don't wonderful. It's sunny in Berlin. And we all looking forward to the times where we can't even remember what COVID-19 was.

James Taylor 1:24
Hopefully, I put with moving it up post-COVID time hopefully very soon, your work was first brought to my attention, we would you and I was doing an event together for AI, an analytics company called fractal. And the executives that they turned me on to this book of yours, Risk Savvy, a wonderful, wonderful book that it's one of those books has probably taken me I can usually read pretty fast. But it's actually taken me I would say a month to go through this book because I read a couple of pages and I need to set it down and think about it and digest it and can reflect on it. But the book itself is all about how to make good decisions by heuristics and understanding risks. So could you give maybe give us a definition of heuristics and how it relates to risk?

Professor Gerd Gigerenzer 2:10
First, I'm glad that it took you so long. Because I mean, it's important to learn about risk and anxiety and how to deal with it. And it takes a bit of time. And it's not a reading that you just on the surface and you forget everything. So the key distinction in this book is one between situations of risk in situations of uncertainty, a situation of risk is where you can calculate the probabilities where you know everything that can happen, you can enumerate it, and also the consequences. So if this evening, you play you go in a casino, and play roulette, you know, everything that can happen, it's a number between zero and 36. You know, the consequences, the probabilities. And you can calculate what comes out if you bet all your money on 17, or a little bit cautiously on red. In that situation, you don't need anything beyond calculation. You don't need intuition. Emotions are totally irrelevant. Trust is irrelevant. All that makes humans is irrelevant. And human psychology evolved to deal not with risk and roulette, or lotteries. But with uncertainty. That's where we need trust that where we need intuition, and that we need heuristics.

James Taylor 3:50
So heuristics take me through that word, what is it? What does it mean? How do we often think about it? What are they? Is it often something else? Sometimes? Is it used in a way that is not really meant to be used?

Professor Gerd Gigerenzer 4:02
Yeah. So a heuristic is a rule of thumb, a rule that tells you what to do in situations of uncertainty where you can't calculate the optimal solution. So for instance, the mathematician poorly distinguished between analytic methods and heuristic methods. To find the proof, there is no algorithm you need heuristics, where to look for, and to find out whether the proof is correct. You need analysis analytics. So that conveys that there is no opposition between the two, which we often are suggested in some behavioral economics books, where analytics is always right. And futuristic is wrong and the one is the SEC, the system two in one's mind the color system one, and they're constantly struggling? No, we need both. And we need heuristics in situations of uncertainty. So an artist will most likely have kind of an intuitive approach will have some heuristics about where to start, what to look for. While in a situation, when you really can calculate your risk, then you just use your mathematics. So the distinction is important. We need both, we need to understand statistics. And we need to understand heuristics.

James Taylor 5:52
Now, you describe early on in the book that our quest or desire for certainty is also one of the biggest obstacles to becoming risk savvy. Can you talk a little bit about that this idea of, of this quest, is yearning perhaps that we have some kind of certainty?

Obstacles To Becoming Risk Savvy

Professor Gerd Gigerenzer 6:07
Yeah. Benjamin Franklin once said, there's nothing certain in this world except death and taxes. And he's right. But many of us have the illusion that things would be certain. For instance, at the moment, we are living through the COVID-19 epidemics. And many people are surprised to hear that a person who has been vaccinated twice, still got infected and may be sick. So vaccination is not certain. There are always a few cases where it doesn't work for whatever reason. So that's an example of an illusion of certainty. And it's almost everywhere. There are major exceptions. There are situations where people don't want to know even things they could know. So, for instance, what do you want to know when you die? 90% of people have surveyed No, thank you, or what? On what you die? That would be actually reasonable? Because you could then at least lay it? No? Or would you want to know whether your marriage will end in divorce? 90%? No. So we are we live a life between illusions of certainty. And also on the other hand, deliberate ignorance.

James Taylor 7:54
So that, these are these three ideas here, like certainty, risk, and uncertainty? Can you speak a little bit more about the differences between, these three things?

Professor Gerd Gigerenzer 8:04
Yeah. So certainty is the absolute exception. And that's mostly an illusion. The things we are certain are those things we mostly made ourselves, the two and two are for.

James Taylor 8:21
Sometimes they use stories, like in science, for example, you will hear someone saying this is a certainty on analytical See, this is a certainty. But maybe it's just that it hasn't been proven to be uncertain, yet here.

Risk And Uncertainty

Professor Gerd Gigerenzer 8:36
So the real distinction is between risk and uncertainty. Those are the two important categories. and here also, most of the situations we have to deal with are on the side of the uncertainty register involved. lots are typical, it's a mixture between the two we can calculate a few things, but the rest is uncertain. That has a consequence also, for instance, artificial intelligence does best in situations, which are highly stable, that is, or of the type of risk of calculable risk, but has problems with situations that are not stable. So the big successes of AI are in chess in go, or Watson's success in a game and even that game Jeopardy, the rules had to be slightly twisted. So to make it more certain for what, but when we go into human behavior, which is typically a case of uncertainty, we are reproducing it all the time. And then, for instance, predicting the future of children who are in trouble, or predicting whether a job applicant will turn out as a superstar. Here, artificial intelligence systems, at least today are not very successful, although they are marketed exactly in that area, because you can make more money than was just,

James Taylor 10:24
I guess, also one of the challenges around that is, with artificial intelligence, hasn't gone through a pandemic before. So in terms of data, having the certain amounts of data that are available, maybe some dates that weren't there, and obviously, artificial intelligence, it kind of thrives on, on data, as well. You know, a lot of the things that we've been seeing just now with the pandemic, I almost feel some of us been, yes, informed by, you know, what the scientist is saying, but some of it has been informed by literature, you know, like, like low friction and writing about how we're trying to kind of navigate ourselves during this kind of strange time that we're all living in.

Professor Gerd Gigerenzer 11:01
Yeah. But even for, for instance, here's an example that makes clear about, we need different tools for different situation. So think about Google's attempt to predict the flu. So exactly the number or the proportion of flu-related doctor visits. And that was hailed as the big success of big data around 2009. And, but the flu doesn't behave in a predictable way. So they usually it's up in the winter and down in the summer. But then there was in 2009, the swine flu, and it came in this summer. So the algorithm who had big data for about five years has learned the flu is high in summer, low in the summer, high in the winter. It didn't work, so they had to drink. But there were many of these. And finally, the engineers gave up and it was very fun for

James Taylor 12:06
Black Black Swan events, I guess,

Professor Gerd Gigerenzer 12:08
by my AI people. So who we have a different vision and that secure risk ratio. So you look out for how people deal with uncertainty in such highly volatile situation. And what we know is that people ignore data, they only rely on the most recent data. So we use that insight and built a heuristic, the most simple one, which just says, the flu, the flu-related, doctor visits next week, are the same as last week, the most recent data, which is clearly wrong, but it's a heuristic. And it turns out, it does much better than big data, than Google's big data analytics in all its revisions. So here, we have a little example here, that you need to be careful and not use too much data, which is always fun to pass if you're in a volatile situation. And they simply heuristic only used one data point and was better than big data.

James Taylor 13:23
So why is heuristics got such a bad rap? In the world of business? Why is it or maybe intuition? Let's put it that way? I got feel it's kind of seen as very, you know, that's, you know, we don't do that anymore. We focus on science and the data and what the analytics say, Is it because no one is selling heuristics as a service? As a product, we saw what was going on why.

Intuition

Professor Gerd Gigerenzer 13:47
So, so let me first define what I mean by intuition. Intuition, is based on years of experience, and you know, or feel what he should do, but he can't explain it. So, experts typically see, maybe, at first claims that something is wrong with this painting is suspicious, whether it's genuine, but the expert cannot explain it. And then needs more researcher, that's intuition. Beginners don't have these types of interactions. And many of the intuitions are based on simple heuristics. Again, it's a situation, of uncertainty. For instance, baseball players. The way they catch a ball is a very simple heuristic. It's mostly not conscious. So you ask why this paid reputation. Now. heuristics didn't have a better reputation until in the 1970s when psychologists started to identify heuristics biases. And this was quite different from the research before. For instance, animal psychology, where animal researchers were amazed about the heuristics that agents were using to find a nest site that animals were used to build things and so on. And mathematicians were using heuristics. And so that was new intuition had a bad name for a long time because it was associated with women. And

James Taylor 15:46
it was seen as a feminine trait.

Professor Gerd Gigerenzer 15:50
If you read the psychology of the early 20th century, and back to enlightenment philosophers like Kant, they make a clear distinction between males and females, his intellect, and the female is characterized by feeling and integration. And we may real rationale, we're going for the abstract. And so the association between men who had dominated women for centuries or millennia, and so the women were the second place, and intuition that is below rational. So the identification of the two-second place, intuition, and women, that is the most historic and it's still there. Yeah, in a survey I did. Most women in Germany and in Spain, believe that they have better intuition than men about everything personal, for instance, about the best romantic partner how to find it. And men agree that they are enabled in this matter. But they think that the best intuition in finance

James Taylor 17:09
and mathematics and most women agree. So we are still living. This is Bridget. I'm James Taylor, business, creativity, and innovation keynote speaker and this is the SuperCreativity podcast. If you enjoy listening to conversations with creative thinkers, innovators, entrepreneurs, educators, and performers, then you've come to the right place. Each week, we discussed their ideas, their life, work, successes, failures, creative process, and much much more. You'll find show notes for today's episode as well as free creativity training at Jamestaylor.me. If you enjoy learning about Professor Gigarenza, then check out my interview with Professor Roger Kneebone, where we discuss why experts matter and how to develop mastery in your chosen profession. Hear my conversation with Roger Kneebone at Jamestaylor.me. After the break, we return to my interview with GERD Gigerenzer, where we discuss how his book saved someone's life. This week's episode is sponsored by speakers, you the online community for international speakers, SpeakersU helped you launch grow, and monetize your speaking business faster than you thought possible. You want to share your message as a highly paid speaker, then SpeakersU will teach you how just go to SpeakersU.com to access their free speaker business training. Something in the book you describe which I thought was very interesting, we see this repeated where someone is maybe an expert in their field, maybe they're senior in the organization, they have this intuition. And it's almost like there's trust, but verify. So they have to put it but then they have to commission a consultant or have additional research done in order to prove their what they feel their intuition to an external audience or to a wider audience or to so what you know is that is that a carry on was kind of going on there cuz I've seen this happen to lots of times where you sense from the CEO you're talking with them or maybe not Nestle, a CEO or senior manager, you're talking with that they feel it. You can see they got they want to go with this. But they say, Oh, we need more data. We need to get more data. And it's a something's a stalling technique. But it's also I guess it's a way for them to try and reduce their risk. Is that is that what's going on there?

 

 

Reducing Risk

Professor Gerd Gigerenzer 19:19
Yeah. James, you're so right. Though. I've worked with large international companies, and asked the executives, how many of the last 10 important decisions. So professional decisions, were in the end, a gut decision. Again, that means it's not arbitrary. Most of them are not women. It's none of these prejudices. But they're going through data, and more data and more data and at the end, the data doesn't tell them what to do. And if they then feel based on their own experience, that we shouldn't do a but B, that's what's being met him. So the gut decision at the end. So when I asked him anonymously, they will say that in about 50% of all important decisions. It's based at the end, at a gut feeling. The same executives would never admit it in public. There's fear. Today, if you say, Okay, I looked through all the data. And it didn't, really wasn't conclusive. So, based on my experience, I felt that we should do that. That is not what's expected from you. So you lie about it. And that's what the most of the executives to whom? And what are the two ways to get around the problem? One is to find reasons after the fact, that's expected from you. So you ask an employee to look for reasons and after two weeks, the person comes back, and you as the executive present the decision that was a gut feeling, you present the decision as a fact-based decision? That's a waste of time of intelligence and money because one is one fears responsibility. There is another version. So the more expensive version is, you ask, you hire a consulting firm, who will then with PowerPoint in 200 pages, confirm your gut decision without ever mentioned the term gut decision. It's an even larger waster I have worked with consulting firms. And once I hit the chain, so dinner, to ask the person in charge, would you be willing to tell me how many of your customer contacts are confirming a decision already made? after the fact? He said to me, Professor geekery answer if you don't mention my name, I will tell you, it's more than 50%. So you see this amount of this game being played. And, and it's so much psychology in so much of waste of resources and anxiety of taking over responsibility, there is even a worse form of that. It's called defensive decision-making. So that's,

James Taylor 23:05
I mean, one of the things I love in the book as well is it just gets you thinking differently about asking questions about curiosity, and I speak about creativity and a core part of that is, is curiosity and asking questions and different types of questions. One of the sections in the book, which is the questions to ask your doctor, when they're giving you and I just thought that alone, I think everyone should read this book for that reason alone. So you're better prepared for going having a conversation with a physician or a doctor or a UI. In your case, I think you spoke about a dentist, as well for your child. But I think this is one of the few books I've read, that you can actually say, This book has actually saved someone's life. Can you tell us a story because I was having a conversation yesterday with the publisher? And then you were saying, you know, some people say that this, this book is going to save your life. And so actually, I just read a book where I can actually show it saved someone's life to tell us about that. That wonderful story.

Professor Gerd Gigerenzer 24:07
So the story

James Taylor 24:09
or if the lady I think she got a diagnosis a pretty serious can diagnose so the first time she met with a doctor, she got a pretty serious diagnosis.

Professor Gerd Gigerenzer 24:19
That you mean HIV? Yeah, yeah. Yeah. So the nowhere I have published him simple tools to understand what a positive test result means. Now, that may not sound too exciting, but today, at least, Corona test. Very interesting topic.

Professor Gerd Gigerenzer 24:45
And you can be sure that most doctors do not understand what the probability is that you're actually infected if you test positive, and how this depends on the day, so afternoon, for HIV tests, and HIV tests are often considered as absolutely certain. So their results if it's positive, so there is an Eliza and another Eliza and then a Western blot test. And if it's positive throughout the entire series, then it's considered by many as absolutely Switzerland. And we know of people who sometimes there is only one Eliza being made sometimes two, and it's not very standardized. We know from people who committed suicide after a positive test. So the important question is, could it be that there is a false positive, that means it's positive, but you're not infected? And that cases happened. And so the story I tell in the book is about a young researcher in California. And she was newly married and pregnant. And according to the rules is she had to take she was asked to take an HIV test. And you went there. And to her total surprise, it came out positive. So she went back. So this was she was communicating that on the phone. Yeah. And she was told you better tell this your husband, a family. And that night was my nightmare. Because what should she tell them? Everything seemed to break down. Then she remembered having read an article where exactly that research of mine was pointed out. And showing that these tests are not absolute certainty, there is a considerable risk of a false positive. And the best you do is immediately go and take a different test. And the doctors hadn't told her that the doctors had provided the illusion of certainty that she is infected by rocket therapy, tells her, and thinks about where it came from. So she went with her husband to a NASA center, and he came up negative and negative again. So she learned about false positives. And we do not know how many people unlucky people who have been provided the illusion of certainty about a test, then believe that is an absolute certainty. So if it is positive, and have no reason, in your history, that it should be positive, like this young lady immediately go again, it's most it can well be that's a false positive.

James Taylor 27:50
No, I mean, there are so many little stories like that as well. In the book, you talk about one about women undergoing hysterectomy, and the percentages were, that was the general female population is, I think it's quite was quite high, I was surprised by how high the number was, as opposed to female physicians or their daughters, much, much lower. I thought I thought it was very kind of, and there are loads of things like that in the book that I just thought was fascinating. So you mentioned this kind of rule of thumb, these heuristics Have you have the most you work with some incredibly creative, innovative leaders in organizations? What are some of the maybe as we start to finish up here, some of the rules of thumb or the heuristics, you've noticed a lot of them use?

Defensive Decision Making

Professor Gerd Gigerenzer 28:37
So before I get to that, defendant, the phenomenon you just talked about is called defensive decision making. It's very important for everyone who visits a doctor to realize particularly in the US less so in Europe, the doctor has no chance bookmaking defensive decisions, and more than 90% of doctors admitted, what does this mean? I, if I'm the doctor, and you are the patient, I have to protect myself from you, as a potential plaintiff, you might sue me. So I recommend you typically too much unnecessary antibiotics, unnecessary surgery unnecessary. And all kinds of prophylactic things, medicine and what else even? Yeah, and because you will likely sue me if I don't do something but not if what I do kills you. So that's defensive decision-making. You find the same among executives, in companies. So defensive decision making then means that you as an executive, think that option is the best thing to do, but you're not going for it. If something goes wrong. It's You who is responsible, you go for a less risky, typically less risky option, so one that everyone else does. And then protect yourself at the costs of your own company. In my research, when I did anonymous studies, with many companies, these are all companies that are on the stock market. So, and do according to their own reports about every second or third decision is defensive. And it's probably much more, you can see how much that costs. And these psychological factors are not factored in, it just going on. And it does huge damage in the case of healthcare. And it does huge damage. In the case of businesses, the only group in businesses where that is quite rare of family businesses, it's your own money. You don't think it and you don't waste it on consulting firms.

James Taylor 31:15
That's so so with the family businesses, they've got that balance between the heuristic side and the analytical side that isn't slightly better balances, it's a little bit more tempered.

Professor Gerd Gigerenzer 31:26
Right. In my experience, when I talk with the leaders who have family businesses, they have no problem saying it's my intuition. Yeah, it's my experience. I go with it.

James Taylor 31:38
Yeah, that's fascinating. How can we teach this stuff in schools and businesses? What can we be doing? Because as I was going through the book, I'm like, why was I never taught this? Like, why? Why does it you know, why is it only kind of later in life, you can learn about some of these things. Do you think this stuff should be in schools? Because they're very similar, actually very simple to teach as well in the way you can describe them?

Professor Gerd Gigerenzer 32:01
Yeah. The question, why don't we teach that in school, and then in university and to journalists, that have puzzled me all the time? The book risks are we like an earlier book, that's called reckoning with risk in Britain and in the UK, calculated risk because my UK publisher didn't think that anyone would buy a book in the US to read the reckoning in it. There are all programs how you can do that. And I found only one person who was supporting that. That's a British investment banker, David Harding. And he gave him money when he read that book, recommend this rescue to set up the Harding center for risk literacy. But the awareness that dealing with risk, so risk literacy and heuristics, if you deal with uncertainty, that that would be something that everyone should learn in school is not there. We are. There is now another Center, the Winton center. David hirings company is Winton capital. in Cambridge, we are still the only ones. And we depend on a single person who has the insight. And the moment, David Harding won't fund this for eternity. So yeah, that change will be gone. Yeah. Well, a lot of weirdness. I

James Taylor 33:52
think it's, it's such an important topic, especially with everything been going through with them with COVID. And when journalists seem to use stats in a console, and politicians use it in a concerned way as well. So I highly encourage people to go and check out this book Risk Savvy. Professor, where is the best place for people to go to learn more about not just this book, but your other books and your other writing and research?

Professor Gerd Gigerenzer 34:18
Going to the internet to sample bookstore and you find lots of books, I'm writing popular books, there will be a one coming out in English the next year, early next year on how to deal with digital risk. So how to stay smart in a smart world. And, and I just think we have so great technological progress, but we don't invest much in people. So the digital world helps real little if people don't understand. Studies show that digital natives Most of them cannot tell an advertisement from a fact, on news. They learn to handle things. But we need to make them risk savvy so that they better can control their own lives. And that holds for adults in the same way. We don't want more paternalism in our world. And I personally don't want more nudging, which is a soft target. We need to risk savvy people. There will be no democracy if we don't invest in people who can make informed decisions for themselves.

James Taylor 35:41
Well, on that note, Professor Gigerenzer, thank you so much for joining us today for the Super creativity podcast. Everyone go and check out this book risk savvy and the professor's other works. Well, thank you, professor.

Professor Gerd Gigerenzer 35:53
It was a pleasure.

James Taylor 35:54
Thank you. You can subscribe to the super creativity podcast on Spotify, Apple Podcasts or wherever you get your podcasts while you're there. Please leave us a review. I would really, really appreciate it. I'm James Taylor. I knew I've been listening to the super creativity podcast.