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Taming uncertainty
Hertwig R., Pleskac T., Pachur T., Center for Adaptive Rationality ., The MIT Press, Cambridge, MA, 2019. 488 pp. Type: Book (978-0-262039-87-1)
Date Reviewed: Aug 13 2020

Humans are not the rational optimizers posited by classical economics or the axiomatic game theory of von Neumann and Morgenstern. Since 2012, the Center for Adaptive Rationality at the Max Planck Institute for Human Development in Berlin has been exploring the real nature of human decisions under uncertainty, using both computational experiments and studies with human informants. This volume is an enlightening and highly readable survey of the team’s work, with abundant references to publications for fuller details.

Chapter 1 is a succinct summary of the research agenda: study how people use three kinds of strategies for making decisions in an uncertain world. These strategies are heuristics (simplified decision rules that may not be optimal), search to compare alternatives, and accessing information from other people. In each case, a recurring theme is that the strategies are not static, but adaptive in the face of a dynamic world.

Chapters 2 to 6 explore the power of a variety of heuristics in different settings. Chapter 2 reports a set of simple but elegant computer simulations that pit five heuristics against expected value theory (the foundation of classical game theory and decision theory) in choosing among multiple bets of the form “a payment of A with a probability of x vs. a payment of B with a probability of 1 - x” for different values of A, B, and x. An example of such a heuristic is: ignore x and choose the highest average of A and B. Chapter 3 shows how people use the size of a potential reward in a decision as an inverse measure of the probability of receiving the reward. Chapter 4 concerns the question of how extensively a person samples acquaintances in gathering information for a decision, and provides evidence that people start with their nearest acquaintances and stop as soon as they have data to distinguish their options. Chapter 5 examines heuristics in strategic games, where formally optimal solutions (for example, the Nash equilibrium) are costly to access. Chapter 6 discusses how knowledge of people’s use of heuristics could guide more effective policies for moving them toward healthier nutritional strategies.

Chapters 7 to 11 discuss how people search for information, and more generally, how they gather and use experience. Chapter 7 contrasts decisions based on problem description (characteristic of most of the problems in the first section) with those that require gathering experience, and argues that they use an adaptive exploration strategy. Chapter 8 considers how the influence of uncertainty on decisions is skewed with respect to the mathematical probability of the outcomes. Chapter 9 looks at decisions whose possible outcomes are temporally separated. Chapter 10 compares the relative impact of experiencing a financial crisis compared with reading a description of it, on subsequent financial decisions. Chapter 11 compares two strategies for using experience in decisions, rule-based versus exemplar-based, showing that people tend to vary depending on the nature of the environment they confront.

Chapters 12 to 14 look at crowd decisions. Chapter 12 examines the relative roles of strategic uncertainty (what will my competitors do) versus environmental uncertainty (what is the real state of the world). Chapter 13 studies “the wisdom of crowds” effect. Chapter 14 compares two classes of models about how people move: the widely used physics-based approach that models people as particles attracted to a destination and repelled from each other, and a heuristic model.

Chapters 15 to 17 consider how cognitive strategies for dealing with uncertainty change over time. Chapter 15 reports examples in computational evolution to understand how the evolutionary process copes with uncertainty. Chapter 16 looks at a more situated example, how human adolescents adapt to uncertainty, and chapter 17 extends this perspective across the entire life span.

Chapter 18 offers a history of reasoning about uncertainty, situating the book’s research program in the broader intellectual context. Back matter includes a glossary, a detailed bibliography, and author and subject indexes.

The overall lesson of this extensive body of work is that the approximate nature of human decision is surprisingly robust in the face of the kinds of uncertainty that the world throws at us. Our deviation from provably optimal strategies is not a defect but a successful strategic balance between accuracy and effort, and behavior that at first appears to be irrational may actually serve people better than a theoretical optimum.

Many of the chapters are associated with online interactions that allow readers to explore the team’s results further, or try out some of the human surveys that lie behind the results.

Reviewer:  H. Van Dyke Parunak Review #: CR147037 (2101-0010)
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