Thinking, Fast and Slow

by Daniel Kahneman

The renowned Danish planning expert Bent Flyvbjerg, now at Oxford University, offered a forceful summary: 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.

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.

Loss aversion is a powerful conservative force that favors minimal changes from the status quo in the lives of both institutions and individuals. This conservatism helps keep us stable in our neighborhood, our marriage, and our job; it is the gravitational force that holds our life together near the reference point.

There were two ways of construing decisions i and ii: narrow framing: a sequence of two simple decisions, considered separately broad framing: a single comprehensive decision, with four options Broad framing was obviously superior in this case. Indeed, it will be superior (or at least not inferior) in every case in which several decisions are to be contemplated together.

We normally experience life in the between-subjects mode, in which contrasting alternatives that might change your mind are absent, and of course WYSIATI. As a consequence, the beliefs that you endorse when you reflect about morality do not necessarily govern your emotional reactions, and the moral intuitions that come to your mind in different situations are not internally consistent.

Their psychology was sound: people will more readily forgo a discount than pay a surcharge. The two may be economically equivalent, but they are not emotionally equivalent.

As we have seen again and again, an important choice is controlled by an utterly inconsequential feature of the situation. This is embarrassing—it is not how we would wish to make important decisions. Furthermore, it is not how we experience the workings of our mind, but the evidence for these cognitive illusions is undeniable.

Confusing experience with the memory of it is a compelling cognitive illusion—and it is the substitution that makes us believe a past experience can be ruined. The experiencing self does not have a voice. The remembering self is sometimes wrong, but it is the one that keeps score and governs what we learn from living, and it is the one that makes decisions.

The use of time is one of the areas of life over which people have some control. Few individuals can will themselves to have a sunnier disposition, but 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. The feelings associated with different activities suggest that 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.

Daniel Gilbert and Timothy Wilson introduced the word miswanting to describe bad choices that arise from errors of affective forecasting. This word deserves to be in everyday language. The focusing illusion (which Gilbert and Wilson call focalism) is a rich source of miswanting. In particular, it makes us prone to exaggerate the effect of significant purchases or changed circumstances on our future well-being.

What can be done about biases? How can we improve judgments and decisions, both our own and those of the institutions that we serve and that serve us? The short answer is that little can be achieved without a considerable investment of effort. As I know from experience, System 1 is not readily educable. Except for some effects that I attribute mostly to age, my intuitive thinking is just as prone to overconfidence, extreme predictions, and the planning fallacy as it was before I made a study of these issues. I have improved only in my ability to recognize situations in which errors are likely: “This number will be an anchor…,” “The decision could change if the problem is reframed…” And I have made much more progress in recognizing the errors of others than my own.