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Thinking, Fast and Slow

Daniel Kahneman

Last accessed on Tuesday July 20, 2021

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The distinction between two selves is applied to the measurement of well-being, where we find again that what makes the experiencing self happy is not quite the same as what satisfies the remembering self. How two selves within a single body can pursue happiness raises some difficult questions, both for individuals and for societies that view the well-being of the population as a policy objective.

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Reminders of money produce some troubling effects. Participants in one experiment were shown a list of five words from which they were required to construct a four-word phrase that had a money theme (“high a salary desk paying” became “a high-paying salary”). Other primes were much more subtle, including the presence of an irrelevant money-related object in the background, such as a stack of Monopoly money on a table, or a computer with a screen saver of dollar bills floating in water. Money-primed people become more independent than they would be without the associative trigger. They persevered almost twice as long in trying to solve a very difficult problem before they asked the experimenter for help, a crisp demonstration of increased self-reliance. Money-primed people are also more selfish: they were much less willing to spend time helping another student who pretended to be confused about an experimental task. When an experimenter clumsily dropped a bunch of pencils on the floor, the participants with money (unconsciously) on their mind picked up fewer pencils. In another experiment in the series, participants were told that they would shortly have a get-acquainted conversation with another person and were asked to set up two chairs while the experimenter left to retrieve that person. Participants primed by money chose to stay much farther apart than their nonprimed peers (118 vs. 80 centimeters). Money-primed undergraduates also showed a greater preference for being alone. The general theme of these findings is that the idea of money primes individualism: a reluctance to be involved with others, to depend on others, or to accept demands from others. The psychologist who has done this remarkable research, Kathleen Vohs, has been laudably restrained in discussing the implications of her findings, leaving the task to her readers. Her experiments are profound—her findings suggest that living in a culture that surrounds us with reminders of money may shape our behavior and our attitudes in ways that we do not know about and of which we may not be proud.

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“The world makes much less sense than you think. The coherence comes mostly from the way your mind works.”

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A reliable way to make people believe in falsehoods is frequent repetition, because familiarity is not easily distinguished from truth.

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Authoritarian institutions and marketers have always known this fact.

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couching familiar ideas in pretentious language is taken as a sign of poor intelligence and low credibility.

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The aphorisms were judged more insightful when they rhymed than when they did not.

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High-quality paper, bright colors, and rhyming or simple language will not be much help if your message is obviously nonsensical, or if it contradicts facts that your audience knows to be true.

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Companies with pronounceable names do better than others for the first week after the stock is issued, though the effect disappears over time. Stocks with pronounceable trading symbols (like KAR or LUNMOO) outperform those with tongue-twisting tickers like PXG or RDO—and they appear to retain a small advantage over some time.

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time. A study conducted in Switzerland found that investors believe that stocks with fluent names like Emmi, Swissfirst, and Comet will earn higher returns than those with clunky labels like Geberit and Ypsomed.

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Mood evidently affects the operation of System 1: when we are uncomfortable and unhappy, we lose touch with our intuition.

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These findings add to the growing evidence that good mood, intuition, creativity, gullibility, and increased reliance on System 1 form a cluster. At the other pole, sadness, vigilance, suspicion, an analytic approach, and increased effort also go together.

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He was now “the psychologist who shows up when we travel abroad.” We (System 2) knew this was a ludicrous idea, but our System 1 had made it seem almost normal to meet Jon in strange places.

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The tendency to like (or dislike) everything about a person—including things you have not observed—is known as the halo effect.

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WYSIATI, which stands for what you see is all there is.

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Furthermore, participants who saw one-sided evidence were more confident of their judgments than those who saw both sides.

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knowing little makes it easier to fit everything you know into a coherent pattern.

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the effect of facial competence on voting is about three times larger for information-poor and TV-prone voters than for others who are better informed and watch less television.

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“This was a clear instance of a mental shotgun. He was asked whether he thought the company was financially sound, but he couldn’t forget that he likes their product.”

Note:remember steve

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substitution. I also adopt the following terms:   The target question is the assessment you intend to produce. The heuristic question is the simpler question that you answer instead.

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System 2 is more of an apologist for the emotions of System 1 than a critic of those emotions—an endorser rather than an enforcer. Its search for information and arguments is mostly constrained to information that is consistent with existing beliefs, not with an intention to examine them. An active, coherence-seeking System 1 suggests solutions to an undemanding System 2.

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The author pointed out that psychologists commonly chose samples so small that they exposed themselves to a 50% risk of failing to confirm their true hypotheses!

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The law of small numbers is a manifestation of a general bias that favors certainty over doubt,

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the law of small numbers is part of two larger stories about the workings of the mind. The exaggerated faith in small samples is only one example of a more general illusion—we pay more attention to the content of messages than to information about their reliability, and as a result end up with a view of the world around us that is simpler and more coherent than the data justify. Jumping to conclusions is a safer sport in the world of our imagination than it is in reality. Statistics produce many observations that appear to beg for causal explanations but do not lend themselves to such explanations. Many facts of the world are due to chance, including accidents of sampling. Causal explanations of chance events are inevitably wrong.

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People adjust less (stay closer to the anchor) when their mental resources are depleted, either because their memory is loaded with digits or because they are slightly drunk.

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When the anchoring amount was only $5, contributions averaged $20. When the anchor was a rather extravagant $400, the willingness to pay rose to an average of $143.

Note:religious fundraisers anchor high

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On some days, a sign on the shelf said limit of 12 per person. On other days, the sign said no limit per person. Shoppers purchased an average of 7 cans when the limit was in force, twice as many as they bought when the limit was removed.

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My advice to students when I taught negotiations was that if you think the other side has made an outrageous proposal, you should not come back with an equally outrageous counteroffer, creating a gap that will be difficult to bridge in further negotiations. Instead you should make a scene, storm out or threaten to do so, and make it clear—to yourself as well as to the other side—that you will not continue the negotiation with that number on the table.

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you should assume that any number that is on the table has had an anchoring effect on you, and if the stakes are high you should mobilize yourself (your System 2) to combat the effect.

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You will occasionally do more than your share, but it is useful to know that you are likely to have that feeling even when each member of the team feels the same way.

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Subsequent research confirmed that the substance might pose a very small risk as a possible carcinogen, but the Alar incident was certainly an enormous overreaction to a minor problem. The net effect of the incident on public health was probably detrimental because fewer good apples were consumed.

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“This is an availability cascade: a nonevent that is inflated by the media and the public until it fills our TV screens and becomes all anyone is talking about.”

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The combination of WYSIATI and associative coherence tends to make us believe in the stories we spin for ourselves. The essential keys to disciplined Bayesian reasoning can be simply summarized: Anchor your judgment of the probability of an outcome on a plausible base rate. Question the diagnosticity of your evidence. Both ideas are straightforward. It came as a shock to me when I realized that I was never taught how to implement them, and that even now I find it unnatural to do so.

Note:bayes

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The word fallacy is used, in general, when people fail to apply a logical rule that is obviously relevant. Amos and I introduced the idea of a conjunction fallacy, which people commit when they judge a conjunction of two events (here, bank teller and feminist) to be more probable than one of the events (bank teller) in a direct comparison.

Note:conjunction fallacy

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“They added a cheap gift to the expensive product, and made the whole deal less attractive. Less is more in this case.”

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Subjects’ unwillingness to deduce the particular from the general was matched only by their willingness to infer the general from the particular.

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You are more likely to learn something by finding surprises in your own behavior than by hearing surprising facts about people in general.

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an important principle of skill training: rewards for improved performance work better than punishment of mistakes.

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The goal of venture capitalists is to call the extreme cases correctly, even at the cost of overestimating the prospects of many other ventures.

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hindsight and the outcome bias generally foster risk aversion, they also bring undeserved rewards to irresponsible risk seekers, such as a general or an entrepreneur who took a crazy gamble and won. Leaders who have been lucky are never punished for having taken too much risk. Instead, they are believed to have had the flair and foresight to anticipate success, and the sensible people who doubted them are seen in hindsight as mediocre, timid, and weak. A few lucky gambles can crown a reckless leader with a halo of prescience and boldness.

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For some of our most important beliefs we have no evidence at all, except that people we love and trust hold these beliefs.

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The global evidence of our previous failure should have shaken our confidence in our judgments of the candidates, but it did not. It should also have caused us to moderate our predictions, but it did not. We knew as a general fact that our predictions were little better than random guesses, but we continued to feel and act as if each of our specific predictions was valid. I was reminded of the Müller-Lyer illusion, in which we know the lines are of equal length yet still see them as being different. I was so struck by the analogy that I coined a term for our experience: the illusion of validity.

Note:illusion of validity

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Many individual investors lose consistently by trading, an achievement that a dart-throwing chimp could not match. The first demonstration of this startling conclusion was collected by Terry Odean, a finance professor at UC Berkeley who was once my student.

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“Trading Is Hazardous to Your Wealth,” they showed that, on average, the most active traders had the poorest results, while the investors who traded the least earned the highest returns. In another paper, titled “Boys Will Be Boys,” they showed that men acted on their useless ideas significantly more often than women, and that as a result women achieved better investment results than men.

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The illusion of skill is not only an individual aberration; it is deeply ingrained in the culture of the industry.

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We know that people can maintain an unshakable faith in any proposition, however absurd, when they are sustained by a community of like-minded believers.

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Black Swan, our tendency to construct and believe coherent narratives of the past makes it difficult for us to accept the limits of our forecasting ability.

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Foxes, by contrast, are complex thinkers. They don’t believe that one big thing drives the march of history (for example, they are unlikely to accept the view that Ronald Reagan single-handedly ended the cold war by standing tall against the Soviet Union). Instead the foxes recognize that reality emerges from the interactions of many different agents and forces, including blind luck, often producing large and unpredictable outcomes. It was the foxes who scored best in Tetlock’s study, although their performance was still very poor. But they are less likely than hedgehogs to be invited to participate in television debates.

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The line that separates the possibly predictable future from the unpredictable distant future is yet to be drawn.

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Because you have little direct knowledge of what goes on in your mind, you will never know that you might have made a different judgment or reached a different decision under very slightly different circumstances.

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success of equal-weighting schemes has an important practical implication: it is possible to develop useful algorithms without any prior statistical research.

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marital stability is well predicted by a formula: frequency of lovemaking minus frequency of quarrels You don’t want your result to be a negative number.

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intuition adds value even in the justly derided selection interview, but only after a disciplined collection of objective information and disciplined scoring of separate traits.

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you are much more likely to find the best candidate if you use this procedure than if you do what people normally do in such situations, which is to go into the interview unprepared and to make choices by an overall intuitive judgment such as “I looked into his eyes and liked what I saw.”

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“Whenever we can replace human judgment by a formula, we should at least consider it.”

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On many occasions, however, you may feel uneasy in a particular place or when someone uses a particular turn of phrase without having a conscious memory of the triggering event.

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a physician in the early twentieth century who often had intuitions about patients who were about to develop typhoid. Unfortunately, he tested his hunch by palpating the patient’s tongue, without washing his hands between patients. When patient after patient became ill, the physician developed a sense of clinical infallibility. His predictions were accurate—but not because he was exercising professional intuition!

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The situations that face a harbor pilot maneuvering large ships are no less regular, but skill is much more difficult to acquire by sheer experience because of the long delay between actions and their noticeable outcomes.

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Whether professionals have a chance to develop intuitive expertise depends essentially on the quality and speed of feedback, as well as on sufficient opportunity to practice.

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I eventually learned three lessons from it. The first was immediately apparent: I had stumbled onto a distinction between two profoundly different approaches to forecasting, which Amos and I later labeled the inside view and the outside view. The second lesson was that our initial forecasts of about two years for the completion of the project exhibited a planning fallacy. Our estimates were closer to a best-case scenario than to a realistic assessment. I was slower to accept the third lesson, which I call irrational perseverance: the folly we displayed that day in failing to abandon the project. Facing a choice, we gave up rationality rather than give up the enterprise.

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Using such distributional information from other ventures similar to that being forecasted is called taking an “outside view” and is the cure to the planning fallacy.

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The forecasting method that Flyvbjerg applies is similar to the practices recommended for overcoming base-rate neglect: Identify an appropriate reference class (kitchen renovations, large railway projects, etc.). Obtain the statistics of the reference class (in terms of cost per mile of railway, or of the percentage by which expenditures exceeded budget). Use the statistics to generate a baseline prediction. Use specific information about the case to adjust the baseline prediction, if there are particular reasons to expect the optimistic bias to be more or less pronounced in this project than in others of the same type.

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Overall, the return on private invention was small, “lower than the return on private equity and on high-risk securities.” More generally, the financial benefits of self-employment are mediocre: given the same qualifications, people achieve higher average returns by selling their skills to employers than by setting out on their own. The evidence suggests that optimism is widespread, stubborn, and costly.

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disbelieving is hard work, and System 2 is easily tired.

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the long-term success of a relationship depends far more on avoiding the negative than on seeking the positive. Gottman estimated that a stable relationship requires that good interactions outnumber bad interactions by at least 5 to 1.

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You are also less prone to useless churning of your portfolio if you don’t know how every stock in it is doing every day (or every week or even every month). A commitment not to change one’s position for several periods (the equivalent of “locking in” an investment) improves financial performance.

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Another argument against selling winners is the well-documented market anomaly that stocks that recently gained in value are likely to go on gaining at least for a short while.

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hindsight-avoiding policy is to be either very thorough or completely casual when making a decision with long-term consequences. Hindsight is worse when you think a little, just enough to tell yourself later, “I almost made a better choice.”

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Poignancy (a close cousin of regret) is a counterfactual feeling, which is evoked because the thought “if only he had shopped at his regular store…” comes readily to mind.

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when in doubt, favor the poor. The surprising aspect of Schelling’s problem is that this apparently simple moral rule does not work reliably.

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Religious participation also has relatively greater favorable impact on both positive affect and stress reduction than on life evaluation. Surprisingly, however, religion provides no reduction of feelings of depression or worry.

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