Everyday life is comprised of a series of decisions, from choosing what to wear to deciding what major to declare in college and whom to share a life with. Modern era economic theories were first brought into psychology in the 1950s and 1960s by Ward Edwards and Herbert Simon. Simon suggested that individuals do not always choose the best alternative among the options because they are bounded by cognitive limitations (e.g., memory). People who choose the good-enough option “satisfice” rather than optimize, because they are bounded by their limited time, knowledge, and computational capacity. Daniel Kahneman and Amos Tversky were among those who took the next step by demonstrating that individuals are not only limited but are inconsistent in their preferences, and hence irrational. Describing a series of biases and fallacies, they elaborated intuitive strategies (i.e., heuristics) that people tend to use when faced with difficult questions (e.g., “What proportion of long-distance relationships break up within a year?”) by answering based on simpler, similar questions (e.g., “Do instances of swift breakups of long-distance relationships come readily to mind?”).
More recently, the emotion-versus-reason debate has been incorporated into the field as an approach to how judgments can be governed by two fundamentally different processes, such as intuition (or affect) and reasoning (or deliberation). A series of dual-process approaches by Seymour Epstein, George Lowenstein, Elke Weber, Paul Slovic, and Ellen Peters, among others, attempt to explain how a decision based on emotional and/or impulsive judgments (i.e., system 1) should be distinguished from those that are based on a slow process that is governed by rules of reasoning (i.e., system 2). Valerie Reyna and Charles Brainerd and other scholars take a different approach to dual processes and propose a theory—fuzzy-trace theory—that incorporates many of the prior theoretical elements but also introduces the novel concept of gist mental representations of information (i.e., essential meaning) shaped by culture and experience. Adding to processes of emotion or reward sensitivity and reasoning or deliberation, fuzzy-trace theory characterizes gist as insightful intuition (as opposed to crude system 1 intuition) and contrasts it with verbatim or precise processing that does not consist of meaningful interpretation. Some of these new perspectives explain classic paradoxes and predict new effects that allow us to better understand human judgment and decision making. More recent contributions to the field include research in neuroscience, in particular from neuroeconomics.
Development of Risky Decision Making: Fuzzy-Trace Theory and Neurobiological Perspectives
