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Heuristics are often characterized as rules of thumb that can be used to speed up the process of decision-making. They have been examined across a wide range of fields, including economics, psychology, and computer science. However, scholars still struggle to find substantial common ground. This study provides a historical review of heuristics as a research topic before and after the emergence of the subjective expected utility (SEU) theory, emphasising the evolutionary perspective that considers heuristics as resulting from the development of the brain. We find it useful to distinguish between deliberate and automatic uses of heuristics, but point out that they can be used consciously and subconsciously. While we can trace the idea of heuristics through many centuries and fields of application, we focus on the evolution of the modern notion of heuristics through three waves of research, starting with Herbert Simon in the 1950s, who introduced the notion of bounded rationality and suggested the use of heuristics in artificial intelligence, thereby paving the way for all later research on heuristics. A breakthrough came with Daniel Kahneman and Amos Tversky in the 1970s, who analysed the biases arising from using heuristics. The resulting research programme became the subject of criticism by Gerd Gigerenzer in the 1990s, who argues that an ‘adaptive toolbox’ consisting of ‘fast-and-frugal’ heuristics can yield ‘ecologically rational’ decisions.
Heuristics are mental shortcuts applied, consciously, subconsciously or both, to save time and efforts at the expense of risking the accuracy of the outcome. Therefore, one might argue that it is just an accuracy-effort trade-off. Nonetheless, we ought to recognize the distinction between the circumstances of risk, where all choices, outcomes, and probabilities might be generally known, and the circumstances of uncertainty, where, at least some, are not. Traditional models like the Subjective Expected Utility (SEU) work best for decisions under risk but not under uncertainty, which portrays most situations people need to tackle. Uncertainty requires simple heuristics that are sufficient instead of perfect. In this dissertation, the notion of heuristics was researched through a comprehensive historical review that unfolded the heuristics-linked ideas of significant scholars. An explicit distinction between the deliberate and the automatic heuristics was stated with chronological categories of pre and post-introduction of the SEU theory; providing a new perspective and opening a discussion for future research to consider. Additionally, qualitative and quantitative studies were applied that produced an unsophisticated heuristic set that was used by entrepreneurs in the Middle East and Germany. Perhaps entrepreneurs, and people in general, do not always know or acknowledge their use of heuristics. But still, they use it extensively and may exchange heuristics among others. That may lead us to think that in a world where uncertainty prevails, the Homo heuristicus might become a real threat to the Homo economicus.
The heuristics applied by tech entrepreneurs in the Middle East during opportunity evaluation
(2022)
Purpose
This study aims to explore the heuristics applied by tech entrepreneurs in the Middle East during the opportunity evaluation process.
Design/methodology/approach
A multiple case-based methodology was applied, which consisted of semi-structured interviews with entrepreneurial experts from different cities in the Middle East. Qualitative data analysis was then performed with inductive thematic coding using the Eisenhardt method.
Findings
The results suggest that entrepreneurs mostly use six heuristics to evaluate opportunities quickly. Three of them are related to the opportunity as an abstract idea, and three are connected with the person (s) involved in the opportunity. In addition, entrepreneurs in the Middle East were more interested in the personal characteristics of the opportunity presenter than in the opportunity itself.
Research limitations/implications
Identifying the heuristics applied by experts may neglect the perspective of the community of entrepreneurs as a whole. Hence, future research should target a wider segment of entrepreneurs. Furthermore, the effect of applying such heuristics on the strategic growth of startups remains an open question.
Practical implications
The identified heuristics are aligned with the hands-on approach of entrepreneurship and can be applied as a decision-making technique for aspiring entrepreneurs who seek to succeed in this region.
Originality/value
This study explores the under-examined topic of heuristics in opportunity evaluation within the regional context of the Middle East, which has also been scarcely investigated. It sheds light on the importance of cultural factors in identifying the cognitive shortcuts used in a business context.
Heuristics are cognitive shortcuts or rules of thumb that can be used to speed up the process of decision-making. They have been examined across a wide range of fields like economics, psychology, computer science and technology. However, scholars still struggle to find substantial common ground. This study provides a historical overview of heuristics as a research topic emphasizing the evolutionary perspective that takes heuristics as resulting from the development of the brain. Unlike much of the literature, we find it useful to clearly distinguish between conscious heuristics and subconscious heuristics. While we can trace the idea of heuristics through many centuries and fields of application, we focus on the evolution of the “modern” notion of heuristics through three waves of research and theory development starting with Herbert Simon who introduced the inspiring theory of “bounded rationality”, thereby paving the way for all following researchers to dig deeper into heuristics. Then came the breakthrough of Daniel Kahneman and Amos Tversky who established a cognitive basis for human biases that arise from heuristics, and later the work of Gerd Gigerenzer who provided a practical “toolbox” consisting of “fast-and frugal” heuristics that are meant to yield “ecologically rational” decisions. This study aims to provide a comprehensive roadmap of what stages research on the notion of heuristics followed in an attempt to compile and explain the diversity of perspectives within the existing literature.