Gerd Gigerenzer on Decision Making

Quite often the ideas of ‘risk’ and of ‘uncertainty’ get bandied about interchangeably, but there’s a world of difference between them and it matters greatly when that distinction gets lost.

That’s a key message from psychologist Gerd Gigerenzer, who has created an impressive case for both understanding the distinction and then acting appropriately based on the distinction.

“A situation with risk,” he tells interviewer David Edmonds in this Social Science Bites podcast, “is one where you basically know everything. More precisely, you know everything that can happen in the future … you know the consequences and you know the probabilities.” It is, as Bayesian decision theorist Jimmie Savage called it, “a small world.”

As an example, Gigerenzer takes us a spin on a roulette wheel – you may lose your money on a low-probability bet, but all the possible options were known in advance.

Uncertainty, on the other hand, means that all future possible events aren’t known, nor are their probabilities or their consequences. Rounding back to the roulette wheel, under risk all possibilities are constrained to the ball landing on a number between 1 and 36. “Under uncertainty, 37 can happen,” he jokes.

“Most situations in which we make decisions,” says Gigerenzer, “involve some sort of uncertainty.”

Dealing with risk versus dealing with uncertainty requires different approaches. With risk, all you need is calculation. With uncertainty, “calculation may help you to some degree, but there is no way to calculate the optimal situation.” Humans nonetheless have tools to address uncertainty. Four he identifies are heuristics, intuition, finding people to trust, and adopting narratives to sustain you.

In this podcast, he focuses on heuristics, those mental shortcuts and rules of thumb that often get a bad rap. “Social science,” he says, “should take uncertainty seriously, and heuristics seriously, and then we have a key to the real world.”

When asked, Gigerenzer lauds Daniel Kahneman and Amos Tversky for putting “the concept of heuristics back on the table.” But he disagrees with their fast-slow thinking model that gives quick, so-called System 1 thinking less primacy than more deliberative thinking.

“We have in the social sciences a kind of rhetoric that heuristics are always second best and maximizing would be always better. That’s wrong. It is only true in a world of risk; it is not correct in a world of uncertainty, where by definition you can’t find the best solution simply because you don’t know the future.”

Researchers, he concludes, should “take uncertainty seriously and ask the question, ‘In what situations do these heuristics that people use (and experts use) actually work?’ and not just say, ‘They must be wrong because they are a heuristic.’”

Gigerenzer is the director of the Harding Center for Risk Literacy at the University of Potsdam and partner at Simply Rational – The Institute for Decisions. Before that he directed the Center for Adaptive Behavior and Cognition at the Max Planck Institute for Human Development and at the Max Planck Institute for Psychological Research.

His books include general titles like Calculated Risks, Gut Feelings: The Intelligence of the Unconscious, and Risk Savvy: How to Make Good Decisions, as well as academic books such as Simple Heuristics That Make Us Smart, Rationality for Mortals, Simply Rational, and Bounded Rationality.

Awards for his work include the American Association for the Advancement of Science Prize for Behavioral Science Research for the best article in the behavioral sciences in 1991, the Association of American Publishers Prize for the best book in the social and behavioral sciences for The probabilistic revolution, the German Psychology Award, and the Communicator Award of the German Research Foundation. He was a 2014 fellow at the SAGE Center for the Study of the Mind University of California, Santa Barbara (SAGE Publishing is the parent of Social Science Space) and a fellow of the Association for Psychological Science in 2008.