Question

Which of the following is true of heuristics?

a. They help managers make decisions based on what has worked in past experiences.
b. They are assumptions in the rational model of decision making.
c. They are the risks and challenges involved in decision making.
d. They help managers to form a consistent system of preferences, which is used to choose the best alternative.

Answer 1

Heuristics are cognitive shortcuts managers use, based on past experiences, to make decisions efficiently. They rely on rules of thumb rather than detailed analysis, allowing for quick, though not always optimal, decision-making.

Step-by-step explanation:

Heuristics can help decision-makers efficiently arrive at satisfactory solutions by applying simple and practical rules from past experiences, instead of conducting an exhaustive analysis of all possible options. Referring to the student's question, the most accurate statement about heuristics is that they help managers make decisions based on what has worked in past experiences. This aligns with the concept that heuristics are cognitive shortcuts or rules of thumb used when making judgments under uncertainty.

While heuristics ease the cognitive load and save time, they may not always lead to the most rational or optimal decisions, since they can be influenced by cognitive biases. These biases can lead to inconsistent and seemingly 'irrational' behavior that diverges from the traditional economic models of rationality. Contrary to the traditional models, heuristics allow us to make quick decisions without the exhaustive, and sometimes impractical, collection and analysis of all information.