Try answering these questions…
6. Linda is 31 years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear demonstrations. Which of the following two alternatives is more probable? 1. Linda is a bank teller or 2. Linda is a bank teller and active in the feminist movement
All of these were examples used in the book. The answers to the questions are at the end of the post…
I am fascinated by behavioral psychology and I don’t know if there is anyone more knowledgeable on the topic than Danny Kahneman. Thinking Fast and Slow was a great novel. It actually felt more like an approachable textbook than a novel. It is not hard to read, but it is dense, filled with concept after concept supported by a plethora of research.
As the title eludes to, the main premise is the distinction between the two systems in our minds – we either think fast or think slow. System 1 (thinking fast) operates automatically and quickly, with little to no effort (i.e. What is 2+2? What is the capital of France?). System 2 (thinking slow) allocates attention to demanding mental activities (i.e. What is 17 X 24? How many times did I use the letter “t” in this post?). Most of what we do originates in system 1, but system 2 takes over when things are difficult.
Here are some key ideas that I took away from the book:
The Halo Effect: “Our tendency to believe that good people only do good things and bad people only do bad things. The statement ‘Hitler loved dogs and little children’ is shocking no matter how many times you read it.”
The role luck plays in success: “A year after founding Google, [the founders] were willing to sell the company for less than $1 million, but the buyer said the price was too high. Now that’s luck. The human mind does not deal well with non-events. The fact that many of the important events that did occur involves choices further tempts you to exaggerate the role of skill and underestimate the part that luck played in the outcome. Because every critical decision turned out well, the record suggests almost flawless prescience – but bad luck could have disrupted any one of the successful steps. The halo effect adds the final touches, lending an aura of invincibility to the heroes of the story. Of course 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.”
We suck at predicting the future: “The illusion that one has understood the past feeds the further illusion that one can predict the future. Many business books are tailor made to satisfy this need. The human mind needs a simple message of success and failure that identifies clear causes, which ignores the determining power of luck and the inevitability of regression to the mean. We all have a need for the reassuring message that actions have appropriate consequences, and that success will reward wisdom and courage.”
Loss Aversion: “[For individual investors], closely following daily fluctuations in the market is a losing proposition, because the pain of the frequent small losses exceeds the pleasure of equally frequent small gains. Once a quarter is enough, and may be more than enough for individual investors. In addition to improving the emotional quality of life, the deliberate avoidance of exposure to short term outcomes improves the quality of both decisions and outcomes. The typical short term reaction to bad news is increased loss aversion. Decision makers who are prone to narrow framing construct a preference every time they face a risky choice (i.e. constantly changing your mind about buying and selling investments). They would do better having a risk policy that they routinely apply whenever a relevant problem arises. For example, “take the highest possible deductible when purchasing insurance” and “never buy extended warranties.”
This could quite possibly be my favorite quote from the book: “People who are taught surprising statistical facts about human behavior may be impressed to the point of telling their friends about what they heard, but this does not mean that their understanding of the world has really changed. The test of learning psychology is whether your understanding of situations you encounter has changed, not whether you have learned a new fact. Even compelling causal statistics will not change long held beliefs or beliefs rooted in personal experience. On the other hand, surprising individual cases have a powerful impact and are a more effective tool for teaching psychology.”
Answers to the above questions:
1. 5 cents. If you say 10 cents, system 1 answered – you didn’t actively check whether then answer was correct. System 2 is lazy. Many people are overconfident and place too much faith into their intuitions.
2. 5 minutes
3. 47 days
4. Moses took no animals, Noah did
5. She does not have a college degree. Most people choose PhD, but there are many many more non graduates than PhDs riding the New York subways. Similar question: John is described as very shy, with little interest in people, has a need for order and structure and has a passion for detail. Is John more likely to be a librarian or a farmer. Most people say librarian, but there are 20 male farmers for every one male librarian.
6. Number 1 – Linda is a bank teller. Rationally, statement 2 cannot be more likely than statement 1, but in a 1983 study by Amos Tversky and Daniel Kahneman, 85 percent of respondents said that it was.