to move the heuristics and biasesliterature on from identification and classification to the development of an overarching theory of heuristic choice. Thus he states is understandable that when heuristics were first proposed as the underlying cognitive “It processes in the 1970's they were loosely characterised. Yet, 25 years and many experiments later, explanatory notions such as representativeness seem vague, undefined, and unspecified with respect to both the antecedent conditions that elicit (or suppress) them and also to the cognitive processes that underlie them." (Gigerenzer, 1996, p 592) In this sense we might regard Gigerenzer and his co-authors as completing a research project commenced by K&T, rather than simply critiquing it, although an element of critique and tension between the two approaches must certainly remain. 3.1.2 Reference points, framing and endowments. For the investor in a standard utility all that matters is outcomes and their probabilities, with the past, with its joys and sorrows, being irrelevant. But for the prospect theory investor what matters are changes not levels of wealth. So what I had in the past, how "people like me live", matters. Being unable to buy my own house, privately educate my children, or send them to University may hurt more if they were comforts I enjoyed in my own childhood or are normal amongst my social peers. So context matters not just the outcomes themselves. In particular losses matter and hurt more than gains of equivalent magnitude please me. So I may stop having weekends in London hotels in the face of price hikes. But price discounts may not necessarily attract me back as a customer because I have become accustomed to being doing without trips to London. The effect” teaches us that what I have I hold, for example the tradition of “endowment privately educating our children (TFS, p. 290). But unlike Gigerenzer K&T seem to say little about how rationality evolves to allow investors to adopt the best cognitive frame given the trading environment they inhabit. K&T have specified the context for decision-making with respect to risk into a very simple typology, suggested by the tenets of prospect theory (TF&S, p 317). This typology stratifies the
to move the heuristics and biasesliterature on from identification and classification to the development of an overarching theory of heuristic choice. Thus he states “It is understandable that when heuristics were first proposed as the underlying cognitive processes in the 1970's they were loosely characterised. Yet, 25 years and many experiments later, explanatory notions such as representativeness seem vague, undefined, and unspecified with respect to both the antecedent conditions that elicit (or suppress) them and also to the cognitive processes that underlie them." (Gigerenzer, 1996, p 592) In this sense we might regard Gigerenzer and his co-authors as completing a research project commenced by K&T, rather than simply critiquing it, although an element of critique and tension between the two approaches must certainly remain. 3.1.2 Reference points, framing and endowments. For the investor in a standard utility all that matters is outcomes and their probabilities, with the past, with its joys and sorrows, being irrelevant. But for the prospect theory investor what matters are changes not levels of wealth. So what I had in the past, how "people like me live", matters. Being unable to buy my own house, privately educate my children, or send them to University may hurt more if they were comforts I enjoyed in my own childhood or are normal amongst my social peers. So context matters not just the outcomes themselves. In particular losses matter and hurt more than gains of equivalent magnitude please me. So I may stop having weekends in London hotels in the face of price hikes. But price discounts may not necessarily attract me back as a customer because I have become accustomed to being doing without trips to London. The “endowment effect” teaches us that what I have I hold, for example the tradition of privately educating our children (TFS, p. 290). But unlike Gigerenzer K&T seem to say little about how rationality evolves to allow investors to adopt the best cognitive frame given the trading environment they inhabit. K&T have specified the context for decision-making with respect to risk into a very simple typology, suggested by the tenets of prospect theory (TF&S, p 317). This typology stratifies the
IJMR-2015-Anon.docx