Mental shortcuts can lead to suboptimal outcomes from "summary" of Advances in Behavioral Finance by Richard H. Thaler
When individuals rely on mental shortcuts to make decisions, they often do not consider all relevant information or weigh it appropriately. This can result in suboptimal outcomes because these shortcuts can lead to biases and errors in judgment. For example, individuals may use the availability heuristic, which involves making judgments based on the information that is most readily available to them. This can lead to overestimating the likelihood of certain events based on how easily they come to mind. Another mental shortcut that can lead to suboptimal outcomes is anchoring, where individuals rely too heavily on the first piece of information they receive when making decisions. This can result in individuals anchoring their decisions to irrelevant information, leading to biased outcomes. Additionally, individ...
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