The recognition heuristic: A fast and frugal way to investment choice? (2008)
Abstract
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.
Bibliographic entry
Ortmann, A., Gigerenzer, G., Borges, B., & Goldstein, D. G. (2008). The recognition heuristic: A fast and frugal way to investment choice? In C. R. Plott & V. L. Smith (Eds.), Handbook of experimental economics results: Vol. 1 (Handbooks in Economics No. 28) (pp. 993-1003). Amsterdam: North-Holland. (Full text)
Miscellaneous
| Publication year | 2008 | |
|---|---|---|
| Document type: | In book | |
| Publication status: | Published | |
| External URL: | http://library.mpib-berlin.mpg.de/ft/ao/AO_Recognition_2008.pdf View | |
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