by FPA member David Zuckerman, CFP®, CIMA® Last Updated:
September 18, 2012 Traditional economics holds that people
process information in an objective and unbiased manner. The
reality, however, is that most people process information in a
manner that is far from objective. People have a tendency to
make decisions that are too heavily influenced by readily
available information that can lead to suboptimal outcomes when
an overly simplified, heuristic approach is substituted for more
rigorous analysis. Memories are Biased Simple memories that can
be easily recalled are typically relied upon more heavily than
memories that are either more difficult to understand or harder
to recall. As such, recent events are often over weighted in the
decisions that we make. Biased memories, however, only cause
suboptimal outcomes when they lead to overly simplified,
heuristic decision making. “Common sense” rules of thumb and
“educated guesses” are examples of heuristic decision making,
which can be defined as an experience-b