Thinking, Fast and Slow

Daniel Kahneman (2011). Thinking, fast and slow. Doubleday, Random House.

3 it is much easier, as well as far more enjoyable, to identify and label the mistakes of others than to recognize our own

3 The hope for informed gossip is that there are distinctive patterns in the errors people make

4 Much of the discussion in this book is about biases of intuition

9 luck plays a large role in every story of success

10 the idea that our minds are susceptible to systematic errors is now generally accepted

10 judgment heuristics “are quite useful, but sometimes lead to severe and systematic errors.”

11 each of us performs feats of intuitive expertise many times each day

11 Herbert Simon … Intuition is nothing more and nothing less than recognition

15 what organizations might do to improve the quality of judgments and decisions that are made on their behalf

20-21 psychologists Keith Stanovich and Richard West …

-            System 1 operates automatically and quickly, with little or no effort and no sense of voluntary control.

-            System 2 allocates attention to the effortful mental activities that demand it, including complex computations. The operations of System 2 are often associated with the subjective experience of agency, choice, and concentration

23 It is the mark of effortful activities that they interfere with each other, which is why it is difficult or impossible to conduct several at once

23 Intense focusing on a task can make people effectively blind

24 we can be blind to the obvious, and we are also blind to our blindness

24 most of the time, System 2 adopts the suggestions of System 1 with little or no modification

25 The division of labor between System 1 and System 2 is highly efficient: it minimizes effort and optimizes performance. The arrangement works well most of the time

26 One of the tasks of System 2 is to overcome the impulses of System 1. In other words, System 2 is in charge of self-control

28 psychopath … psychopathic charm … a strong attraction to a patient with a repeated history of failed treatment is a danger sign

28 continuous vigilance is not necessarily good … learn to recognize situations in which mistakes are likely and try harder to avoid significant mistakes when the stakes are high. The premise of this book is that it is easier to recognize other people’s mistakes than our own

29 System 1 and System 2 … are fictitious characters

32 Eckhard Hess … the pupils are sensitive indicators of mental effort … they dilate more if the problems are hard than if they are easy

35 Laziness is built deep into our nature

37 switching from one task to another is effortful, especially under time pressure

37 The most effortful forms of slow thinking are those that require you to think fast

40 psychologist Mihaly Csikszentmihalyi … state of effortless attending … flow

41 In a state of flow … maintaining focused attention on these absorbing activities requires no exertion of self-control, thereby freeing resources to be directed to the task at hand

41 both self-control and cognitive effort are forms of mental work … self-control requires attention and effort

41-42 Roy Baumeister … an effort of will or self-control is tiring; if you have had to force yourself to do something, you are less willing or less able to exert self-control when the next challenge comes around. The phenomenon has been named ego depletion

43 The nervous system consumes more glucose than most other parts of the body, and effortful mental activity appears to be especially expensive in the currency of glucose

43-44 parole judges … after each meal … about 65% of requests are granted … the approval rate drops steadily, to about zero, just before the meal … tired and hungry judges tend to fall back on the easier default position of denying requests for parole

45 a recurrent theme of this book: many people are overconfident, prone to place too much faith in their intuitions

45 when people believe a conclusion is true, they are also very likely to believe arguments that appear to support it, even when these arguments are unsound

46 Intelligence is not only the ability to reason; it is also the ability to find relevant material in memory and to deploy attention when needed

47 one of the most famous experiments in the history of psychology, Walter Mischel … exposed four-year-old children to a … choice between a small reward … at any time, or a larger reward … for which they had to wait 15 minutes under difficult conditions … the resistors … As young adults, they were less likely to take drugs. A significant difference in intellectual aptitude emerged: the children who had shown more self-control as four-year-olds had substantially higher scores on tests of intelligence

47-48 training attention not only improved executive control; scores on nonverbal tests of intelligence also improved and the improvement was maintained for several months

48 Keith Stanovich and … Richard West originally introduced the terms System 1 and System 2 (they now prefer to speak of Type 1 and Type 2 processes)

49 distinction between intelligence and rationality

51 associative activation

51 cognition is embodied; you think with your body, not only with your brain

52 you know far less about yourself than you feel you do

52 priming effect

52 ideomotor effect

54 Reciprocal priming effects … Reciprocal links … the common admonition to “act calm and kind regardless of how you feel” is very good advice: you are likely to be rewarded by actually feeling calm and kind

55 Our vote should not be affected by the location of the polling station … but it is

55-56 the idea of money primes individualism … Kathleen Vohs

56 the ubiquitous portraits of the national leader in dictatorial societies not only convey the feeling that “Big Brother is Watching” but also lead to an actual reduction in spontaneous thought and independent action

56 The effects of the primes are robust but not necessarily large

59 cognitive ease … cognitive strain

60 memory illusion

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

62 truth illusions

65 Shane Frederick’s Cognitive Reflection Test … CRT … 90% of the students who saw the CRT in normal font made at least one mistake in the test, but the proportion dropped to 35% when the font was barely legible … performance was better with the bad font. Cognitive strain, whatever its source, mobilizes System 2, which is more likely to reject the intuitive answer suggested by System 1

66 Robert Zajonc … mere exposure effect … the words that were presented more frequently were rated much more favorably than the words that had been shown only once or twice

67 Survival prospects are poor for an animal that is not suspicious of novelty

71 The main function of System 1 is to maintain and update a model of your personal world, which represents what is normal in it

71 surprise itself is the most sensitive indication of how we understand our world

80 Uncertainty and doubt are the domain of System 2

81 when System 2 is otherwise engaged, we will believe almost anything

81 philosophers of science … advise testing hypotheses by trying to refute them … The confirmatory bias of System 1 favors uncritical acceptance of suggestions and exaggerations of the likelihood of extreme and improbable events

82 halo effect

83 Sequence matters … because the halo effect increases the weight of first impressions, sometimes to the point that subsequent information is mostly wasted

85 The principle of independent judgments (and decorrelated errors) has immediate applications for the conduct of meetings … A simple rule can help: before an issue is discussed, all members of the committee should be asked to write a brief summary of their position

86 WYSIATI … what you see is all there is

87 It is the consistency of the information that matters for a good story, not its completeness

91 ratings of competence were far more predictive of voting outcomes in [Alex] Todorov’s study than ratings of likability

     Todorov has found that people judge competence by combining the two dimensions of strength and trustworthiness

91 a category of voters for whom the automatic preferences of System 1 are particularly likely to play a large role … politically uninformed voters who watch a great deal of television

93 System 1 … deals well with averages but poorly with sums

97 A remarkable aspect of your mental life is that you are rarely stumped … we generate intuitive opinions on complex matters … call the operation of answering one question in place of another substitution … The heuristic question is the simpler question that you answer instead

98 heuristic … same root as eureka

98 when called upon to judge probability, people actually judge something else and believe they have judged probability

99 a lazy System 2 often follows the path of least effort and endorses a heuristic answer without much scrutiny of whether it is truly appropriate … you may not even notice that you did not answer the question you were asked

103 The present state of mind looms very large when people evaluate their happiness

103 The psychologist Paul Slovic has proposed an affect heuristic in which people let their likes and dislikes determine their beliefs about the world

111 extreme outcomes … are more likely to be found in small than in large samples

113 even the experts paid insufficient attention to sample size

114 sustaining doubt is harder work than sliding into certainty

117 if you follow your intuition, you will more often than not err by misclassifying a random event as systematic

118 small schools are not better on average; they are simply more variable. If anything, say [Howard] Wainer and [Harris] Zwerling, large schools tend to produce better results, especially in higher grades where a variety of curricular options is valuable

119 anchoring effect

133 students who listed more ways to improve the class rated it higher!

137 Victims and near victims are very concerned after a disaster

138 media coverage … our expectations about the frequency of events are distorted by the prevalence and emotional intensity of the messages to which we are exposed

139 [Paul] Slovic eventually developed the notion of an affect heuristic, in which people make judgments and decisions by consulting their emotions

140 Jonathan Haidt … The emotional tail wags the rational dog

140 Slovac … the public has a richer conception of risks than the experts do

141 the evaluation of the risk depends on the choice of a measure – with the obvious possibility that the choice may have been guided by a preference for one outcome or another … defining risk is thus an exercise in power

141 Cass Sunstein … the existing system of regulation in the United States displays a very poor setting of priorities which reflects reaction to public pressures more than careful objective analysis

142 danger is increasingly exaggerated as the media compete for attention-grabbing headlines

143 small risks: we either ignore them altogether or give them far too much weight – nothing in between

144 availability cascades … the number of casualties from terror attacks is very small relative to other causes of death

153 when you have doubts about the quality of evidence: let your judgments of probability stay close to the base rate

154 There are two ideas to keep in mind about Bayesian reasoning … The first is that base rates matter … The second is that intuitive impressions of the diagnosticity of evidence are often exaggerated

157 When you specify a possible event in greater details you can only lower its probability

158 conjunction fallacy

159 The uncritical substitution of plausibility for probability has pernicious effects on judgments

163 a question phrased as “how many?” makes you think of individuals, but the same question phrased as “what percentage?” does not

165 lawyers apply two styles of criticism: to demolish a case they raise doubts about the strongest arguments that favor it; to discredit a witness, they focus on the weakest part of the testimony

169 neglecting valid stereotypes inevitably results in suboptimal judgments

171 individuals feel relieved of responsibility when they know that others have heard the same request for help

173-174 [Richard] Nisbett and [Eugene] Borgida found that when they presented their students with a surprising statistical fact, the students managed to learn nothing at all. But when the students were surprised by individual cases – two nice people who had not helped – they immediately made the generalization and inferred that helping is more difficult than they had thought … You are more likely to learn something by finding surprises in your own behavior than by hearing surprising facts about people in general

174 Nisbett and Borgida … Subjects’ unwillingness to deduce the particular from the general was matched only by their willingness to infer the general from the particular

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

177 success = talent + luck

       great success = a little more talent + a lot of luck

178 regression to the mean

182 David Freeman used to say that if the topic of regression comes up in a criminal or civil trial, the side that must explain regression to the jury will lose the case

182 regression to the mean has an explanation but does not have a cause

183 extreme groups regress to the mean over time … The control group is expected to improve by regression alone, and the aim of the experiment is to determine whether the treated patients improve more than regression can explain

184 “Our screening procedure is good but not perfect, so we should anticipate regression. We shouldn’t be surprised that the very best candidates often fail to meet our expectations.” 

192 If your predictions are unbiased, you will never have the satisfying experience of correctly calling an extreme case

194 Be warned: your intuitions will deliver predictions that are too extreme and you will be inclined to put far too much faith in them

199 Nassim Taleb … suggests that we humans constantly fool ourselves by constructing flimsy accounts of the past and believing they are true

200 Hitler loved dogs and little children

200 The ultimate test of an explanation is whether it would have made the event predictable in advance … The human mind does not deal well with nonevents

201 there was a great deal of skill in the Google story, but luck played a more important role in the actual event than it does in the telling of it. And the more luck is involved the less there is to be learned

201 Paradoxically, it is easier to construct a coherent story when you know little … our comforting conviction … our almost unlimited ability to ignore our ignorance

201 knew … a highly objectionable word, which should be removed from our vocabulary in discussions of major events

201 we understand the past less than we believe we do

202 A general limitation of the human mind is its imperfect ability to reconstruct past states of knowledge, or beliefs that have changed

203 Actions that seemed prudent in foresight can look irresponsibly negligent in hindsight

204 Although hindsight and outcome bias generally foster risk aversion, they also bring undeserved rewards to irresponsible risk seekers

206 book, The Halo Effect, Philip Rosenzweig … concludes that stories of success and failure consistently exaggerate the impact of leadership style and management practices on firm outcomes … Because of the halo effect, we get the causal relationship backward

207 Knowing the importance of luck, you should be particularly suspicious when highly consistent patterns emerge from the comparison of successful and less successful firms

209 The amount of evidence and its quality do not count for much, because poor evidence can make a very good story. For some of our most important beliefs we have no evidence at all, except that people we love and trust hold these beliefs … the confidence we have in our beliefs is preposterous – and it is also essential

211 The evidence that we could not forecast success accurately was overwhelming

212 our knowledge of the general rule – that we could not predict – had no effect on our confidence in individual cases

212-213 investing … stock … odd: What made one person buy and the other sell? … Most of the buyers and sellers know that they have the same information; they exchange the stocks primarily because they have different opinions

213 On average, the shares that individual traders sold did better than those they bought, by a substantial margin

214 [Terry] Odean and Brad Barber … paper title “Trading Is Hazardous to Your Wealth,” … on average, the most active traders had the poorest results, while the investors who traded the least earned the highest returns … “Boys Will Be Boys” … women achieved better investment results than men

214 Professional investors, including fund managers, fail a basic test of skill: persistent achievement

217 the key question is whether the information about the firm is already incorporated in the price of its stock

218 the illusion that we understand the past fosters overconfidence in our ability to predict the future

218 The idea that large historical events are determined by luck is profoundly shocking, although it is demonstrably true

219 people who spend their time, and their living, studying a particular topic produce poorer predictions than dart-throwing monkeys

220 The first lesson is that errors of prediction are inevitable because the world is unpredictable. The second is that high subjective confidence is not to be trusted as an indicator of accuracy

222 Paul Meehl … Clinical vs. Statistical Prediction: A Theoretical Analysis and a Review of the Evidence

224 the Bordeaux wine industry a likely beneficiary of global warming

224 Several studies have shown that human decision makers are inferior to a prediction formula

225 The research suggests a surprising conclusion: to maximize predictive accuracy, final decisions should be left to formulas, especially in low-validity environments

226 [Robyn] Dawes … showed that marital stability is well predicted by a formula:

    Frequency of lovemaking minus frequency of quarrels

226 an algorithm that is constructed on the back of an envelope is often good enough to compete with an optimally weighted formula, and certainly good enough to outdo expert judgment

232 Herbert Simon … The situation has provided a cue; this cue has given the expert access to information stored in memory, and the information provides the answer. Intuition is nothing more and nothing less than recognition

238 The acquisition of expertise in complex tasks … is intricate and slow because expertise in a domain is not a single skill but rather a large collection of miniskills

239 many of us are prone to have high confidence in unfounded intuitions

239-240 the confidence that people have in their intuitions is not a reliable guide to their validity. In other words, do not trust anyone – including yourself – to tell you how much you should trust their judgment

240 two basic conditions for acquiring a skill:

-            an environment that is sufficiently regular to be predictable

-            an opportunity to learn these regularities through prolonged practice

241 intuition cannot be trusted in the absence of stable regularities in the environment

241 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

242 short-term anticipation and long-term forecasting are different tasks

244 once you understand the main conclusion, it seems it was always obvious

248 There are many ways for any plan to fail, and although most of them are too improbable to be anticipated, the likelihood that something will go wrong in a big project is high

249 In the competition with the inside view, the outside view doesn’t stand a chance

251 projects are rarely abandoned unfinished merely because of overruns in costs or completion times … If they do not recognize the need for an outside view, they commit a planning fallacy

251 Bent Flyvbjerg … The prevalent tendency to underweight or ignore distributional information is perhaps the major source of error in forecasting. Planners should therefore make every effort to frame the forecasting problem so as to facilitate utilizing all the distributional information that is available … taking an “outside view” … is the cure to the planning fallacy … reference class forecasting

252 optimistic bias is a significant source of risk taking

255 the optimistic bias may well be the most significant of the cognitive biases … optimistic bias … lucky person

255 If you were allowed one wish for your child, seriously consider wishing him or her optimism

256 Of course, the blessings of optimism are offered only to individuals who are mildly biased and who are able to “accentuate the positive” without losing track of reality

256 hypothesis: the people who have the greatest influence on the lives of others are likely to be optimistic and overconfident, and to take more risks than they realize

256 When action is needed, optimism, even of the mildly delusional variety, may be a good thing

257 One of the benefits of an optimistic temperament is that it encourages persistence in the face of obstacles. But persistence can be costly

257 the financial benefits of self-employment are mediocre

258 most people genuinely believe that they are superior to most others on most desirable traits

258 firms with award-winning CEOs subsequently underperform, in terms both of stock and of operating performance

259 90% of drivers believe they are better than average

260 drivers … compare themselves to the average without ever thinking about the average

260 the outcome of a start-up depends as much on the achievements of its competitors and on changes in the market as on its own efforts

260 Colin Camerer and Dan Lovallo … competitive neglect

261 Giovanni Dosi and Dan Lovallo call entrepreneurial firms that fail but signal new markets to more qualified competitors “optimistic martyrs” – good for the economy but bad for investors

261 Duke University … 11,600 such forecasts … financial officers of large corporations had no clue about the short-term future of the stock market … the CFOs did not appear to know that their forecasts were worthless

262 CFOs were grossly overconfident about their ability to forecast the market

262 social psychology … Even if they knew how little they know, the executives would be penalized for admitting it

262 Nassim Taleb … optimism is highly valued, socially and in the market; people and firms reward the providers of dangerously misleading information more than they reward truth tellers

263 An unbiased appreciation of uncertainty is a cornerstone of rationality – but it is not what people and organizations want

264 Gary Klein … premortem …”Imagine that we are a year into the future. We implemented the plan as it now exists. The outcome was a disaster. Please take 5 to 10 minutes to write a brief history of that disaster.”

270 Every significant choice we make in life comes with some uncertainty

271 “Prospect Theory: An Analysis of Decision Under Risk.” … article is among the most often cited in the social sciences

274 The poorer man will happily pay a premium to transfer the risk to the richer one, which is what insurance is about

276 [1738 Daniel] Bernoulli’s model lacks the idea of a reference point

277 theory-induced blindness … “This theory is seriously wrong because it ignores the fact that utility depends on the history of one’s wealth, not only on present wealth.” … Daniel Gilbert

280 people become risk seeking when all their options are bad

281 Prospect theory is … more complex than utility theory

287 Prospect theory and utility theory also fail to allow for regret

301 amygdala … The brains of humans and other animals contain a mechanism that is designed to give priority to bad news

302 we are driven more strongly to avoid losses than to achieve gains

305 when a territory holder is challenged by a rival, the owner almost always wins the contest

308 Employers who violate rules of fairness are punished by reduced productivity, and merchants who follow unfair pricing policies can expect to lose sales

344-345 stocks … a massive preference for selling winners rather than losers … the disposition effect … If you care about your wealth rather than your immediate emotions, you will sell the loser … A rational decision maker is interested only in the future consequences of current investments. Justifying earlier mistakes … is known as the sunk-cost fallacy

346 The sunk-cost fallacy keeps people for too long in poor jobs, unhappy marriages, and unpromising research projects

392-393 Day Reconstruction Method (DRM) … American women spent about 19% of the time in an unpleasant state, somewhat higher than French women (16%) or Danish women (14%)

394 It appears that a small fraction of the population does most of the suffering

394 contrasts between French and American women: Frenchwomen spend less time with their children but enjoy it more

394 Our emotional state is largely determined by what we attend to

395 In normal circumstances … we draw pleasure and pain from what is happening at the moment, if we attend to it. To get pleasure from eating, for example, you must notice that you are doing it

395 some may be able to arrange their lives to spend less of their day commuting, and more time doing things they enjoy with people they like … another way to improve experience is to switch time from passive leisure, such as TV watching, to more active forms of leisure, including socializing and exercise

395 It is only a slight exaggeration to say that happiness is the experience of spending time with people you love and who love you

397 The easiest way to increase happiness is to control your use of time. Can you find more time to do the things you enjoy doing? 

400-401 Experienced well-being is on average unaffected by marriage, not because marriage makes no difference to happiness but because it changes some aspects of life for the better and others for the worse

402 The people who wanted money and got it were significantly more satisfied than average; those who wanted money and didn’t get it were significantly more dissatisfied … one recipe for a dissatisfied adulthood is setting goals that are especially difficult to attain

402 focusing illusion … Nothing in life is as important as you think it is when you are thinking about it

405 over time, with few exceptions, attention is withdrawn from a new situation as it becomes more familiar. The main exceptions are chronic pain, constant exposure to loud noise, and severe depression … most long-term circumstances of life, including paraplegia and marriage, are part-time states that one inhabits only when one attends to them

406 Compare two commitments that will change some aspects of your life: buying a comfortable new car and joining a group that meets weekly … Both experiences will be novel and exciting at the start. The crucial difference is that you will eventually pay little attention to the car as you drive it, but you will always attend to the social interaction to which you committed yourself

408 two characters … System 1 … and … System 2 …

       two species … Econs … and the Humans

      two selves … the experiencing self … and the remembering self

410 The remembering self and the experiencing self must both be considered because their interests do not always coincide

411 The only test of rationality is not whether a person’s beliefs and preferences are reasonable, but whether they are internally consistent … Rationality is logical coherence – reasonable or not … Reasonable people cannot be rational by that definition, but they should not be branded as irrational for that reason

412-413 Richard Thaler and … Cass Sunstein … book, Nudge … advocate a position of libertarian paternalism, in which the state and other institutions are allowed to nudge people to make decisions that serve their own long-term interests

416 System 1 is indeed the origin of much of what we do wrong, but it is also the system of most of what we do right – which is most of what we do

416 The acquisition of skills requires a regular environment, an adequate opportunity to practice, and rapid and unequivocal feedback about the correctness of thoughts and actions

417 I have made more progress in recognizing the errors of others than my own

417 cognitive illusions are generally more difficult to recognize than perceptual illusions

417-418 organizations are better than individuals when it comes to avoiding errors