Heuristics and bias are words often used when discussing decision-making and how we think and function mentally. However, some people use these words interchangeably.
Even though the difference between biases and heuristics is a bit elusive, it can be deduced that these two are two different concepts and must not be used interchangeably.
The basic foundation of both these terms lies in an assumption by the founding fathers of behavioural science that cognitive biases stem from judgemental heuristics.
And therefore, the biases that we develop are a result of heuristics. The more you read ahead, the more you may want to agree.
Index:
What are Heuristics and biases?
Nobel-prize-winning economist and cognitive psychologist Herbert Simon, in the year 1950, came up with the concept of heuristics. Therein it is suggested that people often try to make logical and rational decisions and choices but do not always use all their cognitive abilities.
So in order to make decisions and to solve problems, they use mental shortcuts to arrive at judgments quickly and efficiently. It is essentially a rule-of-thumb strategy that is used to lessen the decision-making time and allows people to function quickly. However, these decisions will not be purely rational decisions, as rational decisions take time, thinking, and weighing all alternatives and possible benefits and losses.
A bias or cognitive bias, to be precise, is a Systematic fact or error in the way we think. It happens when an error occurs while processing and interpreting things around us. This affects our decisions and judgments.
Psychologists Amos Tversky and Daniel Kahneman suggested through their research in the year 1970 that biases influence how people think and make judgments. Therefore a bias is essentially an erroneous way in which the brain attempts to simplify information processing.
Difference between Heuristic and bias:
Now, if we were to come up with a difference between the two, we can say that Heuristics stands for a generally accurate interpretation of reality. It might not always be accurate, but most of the time, it is. It is essentially an oversimplified evaluation of a particular situation or thing and is based on past experiences.
Biases, on the other hand, are often mistaken or erroneous representations of reality. It is not an evaluation but rather a belief or hunch based on preference or desired perception. Additionally, you are more likely to adjust a heuristic interpretation but less likely to alter a preference or desired perception.
Types of heuristics:
There are four types of heuristics that we know of:
This type of heuristic can be seen when we display a tendency to overestimate the chances or likelihood of an event happening or not happening based on our memory. We seek whatever is available in memory to make an estimation or evaluation.
- Affect heuristic:
This type of heuristic can be seen when we display a tendency to make a decision or evolve on something based on a good or bad feeling that we may be having. Essentially it is when we rely on our intuition to make a decision.
- Anchoring heuristic:
This type of heuristic can be seen when we display a tendency to anchor our decision based on a pre-set number or value in our mind when dealing with an uncertain number or value. Additionally, we adjust our evaluation to what seems reasonable to us.
This type of heuristic can be seen when we display a tendency to make a decision or evolution based on how one thing seems similar to another thing. We place far greater importance on the similarity between two things and do not take into account individual features, properties, or characteristics.
List biases that impact businesses:
There can be hundreds of biases that can affect the human brain and, thereby, businesses. However, there are some notable biases that can have severe implications on businesses. These are:
- Confirmation bias:
It is a bias wherein we seek things and listen to information that appeals to our views and thinking. We tend to think and do things that conform to our beliefs and tough process. It happens as a way to secure mental resources, protect self-esteem and validate our beliefs.
This is a bias wherein we display a tendency to add more value to a thing or product that we have actively contributed to in the making or in assembling. This is attributed to the fact that we place more importance on our capabilities and justify their worth based on our overestimation of our own skills. Additionally, it is also associated with the basic need in humans to feel productive.
- Hindsight Bias:
The bias occurs when we believe that the past events were predictable in the past when they happened. This a flawed logic as to is almost impossible to always have all the vital information to predict an event or outcome which is completely random. It contributes to the “I knew all along” tendency.
- Novelty Bias:
This is a bias wherein we tend to value a thing, person, or product simply because it is new.
It is a tendency in which we tend to stick to the current scheme of things and arrangements and are averse to making any change in it. Thus when faced with the situation where we have to choose between two alternatives, we tend to go ahead with onion that is close to our pre-set standard.
- The Actor-Observer Bias:
The bias occurs when we put the blame or reasoning behind our actions on things and influences that are outside or alien and not on internal factors and influences. This leads us to blame others for our actions and decisions. This, in the long run, reduces our accountability.
Wherein, a person with limited competence, knowledge, and intellect overestimates his or her competence. This happens when an overconfident person without the required knowledge or skillset in a specified field is allowed to make a decision.
While the list can go on and on, it is important to understand that both heuristics and biases hamper our ability to make logical, reasonable, and accurate decisions. Therefore it is important that we are aware of them and take active steps to avoid them.
Do Share Your Thoughts:
Do tell us all your thoughts in the comments section below, we look forward to reading all the comments in the section below.
Also, do check useful Startup Resources and Tools below and join our newsletter 📰 for free for more interesting Business Case Studies 💰, Startup Insights 🚀, and Startup founders podcast 🎙️ delivered to your inbox every Sunday morning.
Related Articles:
- What is the Availability Heuristic and how does it impact your business?
- What is a Representative heuristic and how does it impact your business?
- Status Quo Bias: How it impacts your business?
- What is Sunk Cost Fallacy and how does it impact your business?
- Disposition effect: Why it matters in business?
- Licensing effect: How it impact businesses?
What is Heuristics?
Heuristics stands for a generally accurate interpretation of reality. It might not always be accurate, but most of the time, it is. It is essentially an oversimplified evaluation of a particular situation or thing and is based on past experiences.
What are Biases?
Biases, on the other hand, are often mistaken or erroneous representations of reality. It is not an evaluation but rather a belief or hunch based on preference or desired perception. Additionally, you are more likely to adjust a heuristic interpretation but less likely to alter a preference or desired perception.