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Here is the Mind and Matter column in the Wall Street Journal, published on 24th December.

Which American city has more inhabitants: San Antonio or San Diego? More Germans than Americans get the answer right (San Diego). What about Hanover or Bielefeld? More Americans than Germans get the answer right (Hanover). In each case, the foreigners pick the right answer by choosing the city they have heard more about, assuming that it’s bigger. The natives know too much and let the excess information get in the way.

This is an example of a “heuristic,” a highfalutin name for a “rule of thumb” or “gut feeling.” Most business people and physicians privately admit that many of their decisions are based on intuition rather than on detailed cost-benefit analysis. In public, of course, it’s different. To stand up in court and say you made a decision based on what your thumb or gut told you is to invite damages. So both business people and doctors go to some lengths to suppress or disguise the role that intuition plays in their work.

Prof. Gerd Gigerenzer, the director of the Max Planck Institute for Human Development in Berlin, thinks that instead they should boast about using heuristics. In articles and books over the past five years, Dr. Gigerenzer has developed the startling claim that intuition makes our decisions not just quicker but better. He rejects the notion that hunches are second best, trading off accuracy for effort to achieve decisions that are “good enough” but not perfect.
As Dr. Gigerenzer sees it, complex problems do not necessarily need complex solutions, and more detailed analysis does not necessarily improve a decision, but often makes it worse. He believes, in effect, that less is more: Extra information distracts you from focusing on the few simple aspects of a problem that matter most.

A baseball player running to catch a fly ball is not behaving, even unconsciously, as if he were solving differential equations to work out where the ball will land. He is following a simple rule: Keep the angle of the falling ball constant in your vision and adjust your running speed accordingly. It’s the same trick used by dragonflies catching flies.

When Jeffrey Skiles, the co-pilot of the plane that made an emergency landing in the Hudson River in January 2009, explained how he and his captain decided that an airport landing was impossible, he described the same “gaze heuristic”: The angle of the plane’s descending glide made the airport appear to rise in their windscreen view-clearly signaling that a landing there was doomed.

The economist Harry Markowitz won the Nobel prize for designing a complex mathematical formula for picking fund managers. Yet when he retired, he himself, like most people, used a simpler heuristic that generally works better: He divided his retirement funds equally among a number of fund managers.

A few years ago, a Michigan hospital saw that doctors, concerned with liability, were sending too many patients with chest pains straight to the coronary-care unit, where they both cost the hospital more and ran higher risks of infection if they were not suffering a heart attack. The hospital introduced a complex logistical model to sift patients more efficiently, but the doctors hated it and went back to defensive decision-making.

As an alternative, Dr. Gigerenzer and his colleagues came up with a “fast-and-frugal” tree that asked the doctors just three sequential yes-no questions about each patient’s electrocardiographs and other data. Compared with both the complex logistical model and the defensive status quo, this heuristic helped the doctors to send more patients to the coronary-care unit who belonged there and fewer who did not.

It is no surprise that in the wake of the great financial crisis, financial regulators are beating a path to Dr. Gigerenzer’s door. The complex algorithms that gave AAA ratings to debts that should not have passed the smell test demonstrated all too well the futility of knowing too much.

For a video showing Gigerenzer presenting his ideas in a lecture, see here.

By Matt Ridley | Tagged:  rational-optimist