What exactly is heuristics?
It is defined as cognitive shortcuts that simplify decision making, it essentially seen in action under the conditions of uncertainty.
These heuristics advancements lead to cognitive biases. There are various heuristics like affect, availability, representative, scarcity heuristics etc.
Some of the heuristics explained:
Scarcity Heuristic-
It is largely used by marketers to motivate customers to immediately buy things. The marketer might say that the product will be available only for a limited time and the consumers will believe that they will miss a good deal if they don’t purchase the product immediately.
Example- Myntra keeps midnight sales which only last for a few hours of the night and customers immediately pick up offers since they believe that the offer won’t last for long and they won’t get a better deal than the existing one.
Availability Heuristics-
It is in which people make a judgement about the likelihood of an event based on how easily an example, instance, a case comes to mind.
Because of this availability bias, our perceptions of risk may be wrong and result in errors.
Example- When you read many articles about Rakesh Jhunjhunwala’s investment portfolios doing well and all his invested shares are giving tremendously good returns, you start to invest more of your money in the same company’s stocks as him with the hope of generating huge returns.
Representative Heuristics-
It is used when we judge the probability that an object or an event A belongs to class B by looking at the degree to which A resembles B. When we do this, we neglect information about the general probability of B occurring (Kahneman and Tversky, 1972).
It confuses the people thinking regarding the probability of an outcome.
Example- Let’s consider a student Shekar who is majoring in psychology and is also a strong proponent of animal rights and safety.
Is Shekar more likely to become a psychologist and start his own practice? Or is he more likely that Shekar is a psychologist having his own practice and also an active animal activist?
People generally will opt for the 2nd option that Shekar is a psychologist having his own practice and is also an animal activist. This choice that people opted for is influenced by representative heuristic bias.
Heuristics at the end of the day may lead to poor decisions making based on limited information but the speed of the decision might be fast. Using heuristics may not lead to an optimal decision but it is a quicker way of making a decision and is useful when there is a given time constraint.
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