Rationality and Its Limit

1. a) Three heuristics described by Tversky and Kahneman are as follows:

Representativeness: Representativeness is the tendency to place something in a class if it seems to represent the class. More explicitly, when people rely on representativeness heuristics, probability of a certain event A is evaluated by the degree to which A is representative of B, which is by the degree to which A resembles B. When A is highly representative of B, the probability that A originates from B is judged to be high. On the other hand, if A is not similar to B, the probability that A originates from B is judged to be low. Representativeness heuristics is unaffected by the prior probability or the base rate frequency which in fact should have a major bearing on determining the probabilities of an event. People relying on representativeness heuristics are insensitive to the sample size from which they draw conclusion about the probability. People employing representativeness heuristics expect that a sequence of events generated by random process will represent the essential characteristics of that process even when the sequence is short. People expect that the essential characteristics of the process will be represented, not only globally in the entire sequence, but also locally in each of its parts. People relying on representativeness heuristics also ignore the phenomenon of “regression to the mean”. People do not expect regression in many contexts where it is bound to occur. Secondly when they recognize the occurrence of regression, they often invent spurious causal explanations for it.

Availability: Availability is the tendency to estimate the probability of an event on the basis of how easy it is to recall examples of the event. As a result of availability, we tend to overestimate the probability of events that are readily available in our memories. Availability is a useful clue for assessing frequency or probability, because instances of large classes are usually recalled better and faster than instances of less frequent classes. However availability heuristics suffer from many predictable biases. When the size of a class is judged by the availability of its instances, a class whose instances are easily retrieved will appear more often than a class of equal frequency whose instances are less retrievable. For e.g. we tend to think that road accidents causes more deaths than heart attack simply because road accidents tend to be more reported in news than heart attacks. Another example here worth mentioning is people tend to believe that there are more words beginning with r than words having r as their third letter. It is much easier to search words by their first letter than by their third letter and this biases their availability heuristics because people’s search set is not effective.