Search Results

Logic and probability theory have been the traditional arbiters of the normative question of how to make good decisions, while psychology has been relegated to studying the descriptive question of how people do make decisions. This chapter argues instead for the normative study of heuristics in terms of their ecological rationality—their fit to particular environments—alongside the descriptive study of the mind’s adaptive toolbox of decision mechanisms in terms of process models rather than as-if optimizing models. In most real-world problems, optimization, the traditional normative standard, is not possible or feasible, so agents must choose a decision tool that will do well enough in the current environment compared to other available tools—satisficing, rather than optimizing. The study of heuristics can be normative through answering questions about what particular heuristic one should use to succeed in a given environment by exploiting the information structure available there.

The dominant behavior observed in social games such as the ultimatum game, the dictator game, and public good games violates the classical assumption in economics of purely selfish preferences. To account for this behavior, economists have proposed social preference models, which introduce nonselfish motives as additional arguments and parameters in the utility function. Like classical utility models, social preference models focus on behavior at the expense of describing underlying cognitive processes, contenting themselves with being “as-if” models. This approach unnecessarily limits the models' psychological realism and forgoes the empirical benefits of describing the processes that produce behavioral outcomes. As an alternative, the chapter proposes fast and frugal classification trees. Designed to describe deliberations and decisions in the mini-ultimatum game, the trees spell out the possible cognitive processes of four distinct types of respondents. The chapter derives response-time predictions from these trees as well as from a process interpretation of an influential social preference model, the Fehr and Schmidt model of inequity aversion, and test the predictions empirically. The observed response times suggest that a substantial proportion of respondents in the mini-ultimatum game take several distinct social considerations into account and process them sequentially, consistent with the proposed classification trees. The chapter discusses the implications of these findings for theories of economic behavior.