Frequencies and human rationality

This post was inspired by reading a number of articles and books about whether or not humans can make rational decisions.  Different definitions of rationality lead to different answers.  Although a popular view is that certain "cognitive illusions" show that humans can be irrational, Gerd Gigerenzer has argued over the years that humans are indeed rational and that human cognition is more adapted to certain representations of information than others.  He and his collaborators have shown that changing the format of the information changes how well experimental subjects do on judgment tasks (which are used to test human rationality).  Herbert Simon made a similar argument about how the representation of a problem can affect how one solves it.

Gigerenzer identified two types of information that are called "probability": subjective probabilities (about single events) and frequencies (within a set).  He repeated judgment experiments by asking for frequency judgments instead of probabilities about single events; in his experiments, fewer subjects committed the errors that were found in the original judgment experiments.  Humans seem irrational if one considers only a certain algorithm or norm as describing true rationality, but the environment and the representation of the information are also relevant when assessing someone's judgment.

To explain human judgment, he proposed the theory of probabilistic mental models (PMM), a model of bounded rationality.  In this theory, a person uses different cues to help make judgments.  In situations with time pressure, a person may use the first useful cue, a heuristic that corresponds to bounded rationality.

Heuristics such as Take the Best and recognition are "short cuts that can produce efficient decisions" and help humans adapt to a complex, dynamic environment.   In 1991 Gigerenzer noted that the heuristics of similarity, availability, and anchoring and adjustment "are largely undefined concepts" and are merely well-known principles of the mind.  Gigerenzer has proposed ecological rationality to explain human decision making.  "Ecological rationality can refer to the adaptation of mental processes to the representation of information ... It can also refer to the adaptation of mental processes to the structure of information in an environment."

Gigerenzer cited Herbert Simon to argue that our cognitive abilites are limited and that our minds "should be understood relative to the environment in which they evolved, rather than to the tenets of classical rationality."  Because our environment included natural frequencies, not single-event probabilities, fewer subjects make errors in experiments with frequencies.  Humans acquire and update natural frequencies through experience.  Moreover, humans can recognize that the environment has changed and will ignore data about the past when it changes.

Recently, Gigerenzer has argued that the study of behavioral economics has a "bias bias"; that is, economists are looking for evidence of systematic errors and bias while ignoring psychological research that contradicts the view that humans are systematically irrational.

Related work

1. Gigerenzer, Gerd, "How to make cognitive illusions disappear: Beyond heuristics and biases," European Review of Social Psychology, Volume 2, Number 1, pages 83-115, 1991.
2. Gigerenzer, Gerd, "The bounded rationality of probabilistic mental models," in K.I. Manktelow and D.E. Over, editors, Psychology and Philosophical Perspectives, Routledge, London, 1993.
   
3. Gigerenzer, Gerd, "Ecological intelligence: An adaptation for frequencies," In D.D. Cummins and C. Allen, editors, The Evolution of Mind, pp. 9-29, Oxford University Press, Oxford, 1998.
4. Gigerenzer, Gerd, Adaptive Thinking, Oxford University Press, Oxford, 2000.
5. Gigerenzer, Gerd, "The bias bias in behavioral economics," Review of Behavioral Economics, Volume 5, Number 3-4, pages 303-336, 2018.