Heuristics

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explains various heuristics
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  Heuristicsand Biases Made by:Deepshikha Yadav (51)Saima Arshad (19)  Heuristics and Biases  When making decisions or judgments, we often use mental shortcuts or rules of thumb known as heuristics . Behavioural finance identifies anumber of heuristics (Greek word for discover ) which describe differentways in which we make decisions quickly and with limited information, butwhich don't necessarily give the correct answer.   These heuristics are useful tools in solving these problems but they canlead to systematic and harsh errors and cognitive biases .   The problem is that these heuristics are not necessarily well suited formodern tasks, such as optimising an investment portfolio or makingmarket timing decisions.  Types of heuristics  The most well known heuristics are :  Representative Heuristics  Availability Heuristics  Adjustment and AnchoringHeuristics  Representative heuristics  When people make judgements on whether an object or event belongs to a certainclass of objects or events, they generally rely on the representativeness heuristic tomake that decision. The person is more likely to believe that an object belongs to aclass if that object is highly representative of the class. If an object does not reallyrepresent the class the person will deem it less likely to actually belong to that class.  For example, in a series of 10 coin tosses, most people judge the seriesHHTTHTHTTH to be more likely that the series HHHHHHHHHH (where H is heads and T is tails), even though both series are equality likely. The reason is that the firstseries looks more random than the second series. It represents our idea of what arandom series should look like.
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