Thinking, Fast and Slow

by Daniel Kahneman

Thaler and Sunstein call it choice architecture—has a huge effect on the outcome.

Deviating from the normal choice is an act of commission, which requires more effortful deliberation, takes on more responsibility, and is more likely to evoke regret than doing nothing.

pernicious

obfuscation.

It avoids the resistance to an immediate loss by requiring no immediate change; by tying increased saving to pay raises, it turns losses into foregone gains, which are much easier to bear; and the feature of automaticity aligns the laziness of System 2 with the long-term interests of the workers.

System 2 is not merely an apologist for System 1; it also prevents many foolish thoughts and inappropriate impulses from overt expression. The investment of attention improves performance

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.

dumbfounded.

profligate

Ultimately, a richer language is essential to the skill of constructive criticism. Much like medicine, the identification of judgment errors is a diagnostic task, which requires a precise vocabulary.

A locally representative sequence, however, deviates systematically from chance expectation: it contains too many alternations and too few runs.

In fact, deviations are not “corrected” as a chance process unfolds, they are merely diluted.

according to which even small samples are highly representative of the populations from which they are drawn.

The responses of these investigators reflected the expectation that a valid hypothesis about a population will be represented by a statistically significant result in a sample with little regard for its size.

As a consequence, the researchers put too much faith in the results of small samples and grossly overestimated the replicability of such results. In the actual conduct of research, this bias leads to the selection of sampl...

It is a common observation that psychologists who conduct selection interviews often experience considerable confidence in their predictions, even when they know of the vast literature that

selection interviews

The internal consistency of a pattern of inputs is a major determinant of one’s confidence in predictions based on these inputs.

Highly consistent patterns are most often observed when the input variables are highly redundant or correlated.

Hence, people tend to have great confidence in predictions based on redundant input variables. However,

incompatible with the belief that the predicted outcome should be maximally representative of the input, and, hence, that the value of the outcome variable should be as extreme as the value of the input variable.

an improvement will usually follow a poor performance and a deterioration will usually follow an outstanding performance, even if the instructor does not respond to the trainee’s

imagining contingencies with which the expedition is not equipped to cope. If

Conversely, the risk involved in an undertaking may be grossly underestimated if some possible dangers are either difficult to conceive of, or simply do not come to mind.

Because adjustments are typically insufficient,

people tend to overestimate the probability of conjunctive events20 and to underestimate the probability of disjunctive events.

compound events

The successful completion of an undertaking, such as the development of a new product, typically has a conjunctive character: for the undertaking to succeed, each of a series of events must occur. Even when each of these events is very likely, the overall probability of success can be quite low if the number of events is large. The general tendency to overestimate the probability of conjunctive events leads to unwarranted optimism in the evaluation of the likelihood that a plan will succeed or that a project will be completed on time.

Conversely, disjunctive structures are typically encountered in the evaluation of risks. A complex system, such as a nuclear reactor or a human body, will malfunct...

the probability of an overall failure can be high if many comp...

natural to begin by thinking about one’s best estimate of the Dow Jones and to adjust this value upward.

However, if even odds or the stated value serve as anchors, the odds of the second group should be less extreme, that is, closer to 1:1.

The value function shown in Figure 1 is (a) defined on gains and losses rather than on total wealth, (b) concave in the domain of gains and convex in the domain of losses, and (c) considerably steeper for losses than for gains.

particularly when the probabilities of loss are substantial.

Consider, for example, a situation in which an individual is forced to choose between an 85% chance to lose $1,000 (with a 15% chance to lose nothing) and a sure loss of $800.

Hence, insurance should appear more attractive when it is framed as the elimination of risk than when it is described as a reduction of risk. Indeed,

Because losses loom larger than gains, consumers are less likely to accept a surcharge than to forgo a discount.

Our analysis of framing and of value can be extended to choices between multiattribute options,

This analysis assumes psychological—but not physical—separability of advantages and disadvantages.

We propose, however, that systematic examination of alternative framings offers a useful reflective device that can help decision makers assess the values that should be attached to the primary and secondary consequences of their choices.

losses are more aversive than costs.

The preceding analysis implies that an individual’s subjective state can be improved by framing negative outcomes as costs rather than as losses. The

Brickman and Campbell’s (1971) concept of the hedonic treadmill suggests the radical hypothesis that rapid adaptation will cause the effects of any objective improvement to be short-lived.