Chapter 107 The Recognition Heuristic: A Fast and Frugal Way to Investment Choice?
This chapter reports how stock portfolios that employed recognition heuristics fared relative to market indices, mutual funds, chance or dartboard portfolios, individual investment decisions, portfolios of unrecognized stocks and other benchmarks proposed by third parties.The surprising performance of recognition-based portfolios in both studies provides further evidence that simple heuristics can make accurate inferences about real-world domains. The stock market is a complex real-world environment in which lack of recognition is not completely random but systematic and simple heuristics such as recognition can exploit these regularities to make accurate inferences at little cost. The recognition heuristic does not rely on a sophisticated analysis of financial markets, the Capital Asset Pricing Model and the like. It is imperative to understand why and under what conditions this simple heuristic can survive in markets that are far removed from those situations where it served some evolutionary purpose.
Year of publication: |
2008
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Authors: | Ortmann, Andreas ; Gigerenzer, Gerd ; Borges, Bernhard ; Goldstein, Daniel G. |
Published in: |
Handbook of experimental economics results : volume 1. - Amsterdam : North Holland, ISBN 0-08-088796-1. - 2008, p. 993-1003
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