Behavior with models: The role of psychological heuristics in operational research

Abstract

Bounded rationality refers to problems where there is not adequate time or computational resources in order to obtain all information and find an optimal solution but where nevertheless a good solution must be identified; i.e. bounded rationality is the realistic kind of rationality that laypeople and experts need to exhibit in our life and work. This chapter presents one view of bounded rationality, which has a very strong behavioral component: it consists of prescriptive models of decision making, which have also been used to describe people’s actual behavior. The models include the few pieces of information that people use and also specify the simple ways in which people process this information. They are called psychological heuristics. This chapter provides the conceptual foundation of the psychological heuristics research program, along with a discussion of its relationship to soft and hard operational research (OR), as well as an introduction to models of psychological heuristics. It is emphasized that it should not be taken for granted that optimization models always perform better. The empirical evidence and theoretical analyses on the relative performance of psychological heuristics and optimization models is presented. A guide is provided for deciding which of the two approaches to use for which types of problems. Finally, the argument is made that psychological heuristics should be chosen for problems that are either easy or difficult, and more complex models of optimization should be used for problems in between.