William Easterly Reviews Daniel Kahneman's Thinking, Fast and Slow

(Kenneth Anderson)

Daniel Kahneman has spent his career studying the ways in people behave rationally and irrationally, for which he has won a Nobel in economics and largely founded the field of behavioral economics.  As development economist William Easterly notes in his Financial Times review, there "have been many good books on human rationality and irrationality, but only one masterpiece. That masterpiece is Daniel Kahneman's 'Thinking, Fast and Slow'."  (The FT review appears to be public.)

Kahneman presents our thinking process as consisting of two systems. System 1 (Thinking Fast) is unconscious, intuitive and effort-free. System 2 (Thinking Slow) is conscious, uses deductive reasoning and is an awful lot of work. System 2 likes to think it is in charge but it's really the irrepressible System 1 that runs the show. There is simply too much going on in our lives for System 2 to analyse everything. System 2 has to pick its moments with care; it is "lazy" out of necessity ...  Of course, Kahneman is one of the fathers of the field of cognitive biases, and most of the book is indeed spent on the mistakes made by System 1. We get probability and uncertainty terribly wrong, usually leading to overconfidence and mistaken decisions. We react to identical situations differently depending on what is already on our minds. Even worse, we don't know what we don't know.

The observation of systematic cognitive bias leads to calls for policies of paternalism, expert guidance to correct for mass cognitive biases.  But as Easterly emphasizes, the experts also have systematic cognitive biases:

Kahneman's endorsement of "libertarian paternalism" contains many good ideas for nudging people in the right direction, such as default savings plans or organ donations. But his case here is much too sweeping, because it overlooks everything the rest of the book says about how the experts are as prone to cognitive biases as the rest of us. Those at the top will be overly confident in their ability to predict the system-wide effects of paternalistic policy-making – and the combination of democratic politics and market economics is precisely the kind of complex and spontaneous order that does not lend itself to expert intuition.

I just purchased this book, on Easterly's recommendation.  But on the basis of the best-seller Nudge, which argued explicitly for libertarian paternalism, I agree with the criticism of "libertarian paternalism."  The problem with Nudge, as many critics pointed out, was that it had one or two terrific examples of where re-setting the default behavior would have a huge and positive effect on outcomes without compromising liberty very much.  Everyone properly focuses on the default opt-out of the company 401(k) plan, rather than opt-in, for example.  Fair enough.  But many of the other applications seemed to critics, and to me, as "shove" rather than "nudge."  So I will be curious to read this book and see if it seems to me any different.

Comments are open.  I am curious whether commenters who have read this literature (whether this book, or Nudge, or others in this category) agree that there is a problem with "shove" over "nudge."  I am also interested in how commenters address the question of experts having their own cognitive biases — ones that are just as powerful, and which often have large consequences for everyone else, as those of the masses whom they manage.  Bill Easterly, as those who know his work would note, has reasons for wanting to emphasize that expert biases can easily be far more important than those of ordinary people.  But in that case, how does one get out of the cognitive bias-skepticism regress, in which there is always another layer of skepticism that undermines the ability to act?  Easterly does point to a particular feature of Kahneman's views — the formation of judgment, the ability to use the lessons of "system 2″ to train "system 1."

Finally, we might ask whether and in what ways that differs from what Aristotle and deliberate inculcation of character to the "proper" formation of judgment.  Skepticism, Aristotle and the virtue-ethicists today might say, is essential — but ultimately too easy.  There's always another layer of skepticism; eventually it becomes a paralyzing cost, rather than a benefit, to action.  Skepticism is easy, judgment is hard.