Another heuristic worth discussing is the affect heuristic. To a psychologist affect means the internal sense of emotion what we feel our mood. The affect heuristic involves choosing one option over another based on their anticipated effects on our emotional state.
Emotions don’t always get in the way
Suppose you are deciding between two vacation destinations: a beachfront resort and a mountain cabin. You struggle with this decision both are great options and there is an obvious objective criterion that separates them. When you think about the beachfront resort you feel a sense of serenity, you imagine ocean breezes and drinks with umbrellas and you feel calm.
But when we think of the mountain cabin you imagine yourself standing there in the crisp cool mountain air and wishing you were on a tropical beach instead. So you choose the beach and you have a great time on vacation. Emotions don’t always get in the way of our decisions, they can be extraordinarily useful.
Simulating our future self
When we use the affect heuristic we are simulating our future self and what are future self might feel after we made our decision. To the degree that our simulations are accurate we can check out the consequences of our decisions before we even make them. If I choose a beach all feel serene if I choose the mountains I’ll be cold and regretful simulation is one of the most powerful tools we have for making good decisions.
The neuroscientist Antonio Damasio recognized this in a somatic marker hypothesis
he argued that our brains store representations of our feelings and the associated body states which he called somatic markers. Somatic is just a fancy way of saying body. For example when we walked down an unfamiliar dark alley at night our brains store the feeling of dread the racing heartbeat in the sense of alertness that accompany a risky action.
It often leads to good choices
So, the next time we approach a dark alley at night our brains can bring to mind that stored somatic marker. We can simulate that feeling of taking that risk before he ever step foot in the alley and then we can choose another path home. Simulation is a fast process, we don’t have to consciously think how would I feel if, we just do it automatically.
The affect heuristic often leads to good choices and then we can anticipate and avoid decisions that would make us unhappy regretful or angry, but fails when negative consequences of our decisions are particularly easy to bring to mind or when we overestimate short-term mood at the expense of long-term satisfaction.
Heuristics, not weaknesses
We often procrastinate when faced with undesirable but necessary course of action, such as selling a stock which we lost money. We do so because we are influenced too much by the short-term pain of taking action, and I want to conclude by reemphasizing the most important point of today’s lecture: heuristics aren’t weaknesses there are not failures in our decision-making they are are tools that help us make good decisions most of the time. The key challenge lies in using the right tool in the right situation.
Each of the heuristics works better in some situations rather than others:
- the familiarity heuristic helps us when we have only limited information toward a decision, but can actually be counterproductive we have more detailed knowledge;
- the anchoring heuristic works best when past events are good predictors of the future, but can bias our judgments when the past isn’t like today;
- the representativeness heuristic is very useful in thinking about many sorts of common real-world categories, but less helpful for rare examples or atypical categories, and
- the affect heuristic works well when our decisions have meaningful emotional consequences but not as well when those emotional consequences are too salient or too fleeting.
When to approach a decision more analytically
So how can we know whether using a heuristic might be helpful? How can we know when to step back and approach a decision more analytically? There is no simple answer to those questions but in the spirit of today’s lecture I can offer a simple rule that works most of the time: heuristics perform best when making decisions about natural real-world events, particularly those for which we have prior experience.
By natural events I mean something that happens in the natural world, the sort of thing that our ancestors might’ve experience in ancient times. Under this rule heuristics are most useful for judgments about social situations, about our own personal reactions or about things that we experience physically and tangibly. Using a heuristic to choose a restaurant is likely to work out well. You have lots of experience choosing restaurants and that past experience is likely to be a good guide for the future.
Heuristics in action
Using a heuristic to choose the mutual funds for retirement account may not be so successful. In 2005 Bill Miller was probably the most celebrated mutual fund manager in the world, his flagship fund had beaten the S&P 500 for an amazing 15 years in a row, from 1991 until 2005. That’s a pretty impressive streak and the amount of money he managed grew dramatically with each passing year.
While his streak was ongoing it attracted considerable interest from the financial community in the popular press. One article explain his success in simple terms: to win spectacularly you have to take risks. That’s the representativeness heuristic in action!
The most successful mutual fund managers the ones who have the greatest returns took the most risks.
Does that imply that taking risks is good? that taking risks ensures future success? Let’s fast-forward to 2011. Now Bill Miller’s mutual fund was near the worst 1% of all funds in its class and he stepped away with much less vampire from leading the primary mutual fund in his company his performance was a paradox. The same person who was at the top of the market for so many years now is at the bottom.