Thinking, Fast and Slow

by Daniel Kahneman

The Illusions of Pundits The idea that the future is unpredictable is undermined every day by the ease with which the past is explained. As Nassim Taleb pointed out in The Black Swan, our tendency to construct and believe coherent narratives of the past makes it difficult for us to accept the limits of our forecasting ability.

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

The results were devastating. The experts performed worse than they would have if they had simply assigned equal probabilities to each of the three potential outcomes. In other words, people who spend their time, and earn their living, studying a particular topic produce poorer predictions than dart-throwing monkeys who would have distributed their choices evenly over the options. Even in the region they knew best, experts were not significantly better than nonspecialists. Those who know more forecast very slightly better than those who know less. But those with the most knowledge are often less reliable. The reason is that the person who acquires more knowledge develops an enhanced illusion of her skill and becomes unrealistically overconfident.

Las predicciones no sirven

Tetlock also found that experts resisted admitting that they had been wrong, and when they were compelled to admit error, they had a large collection of excuses: they had been wrong only in their timing, an unforeseeable event had intervened, or they had been wrong but for the right reasons. Experts are just human in the end. They are dazzled by their own brilliance and hate to be wrong.

Several studies have shown that human decision makers are inferior to a prediction formula even when they are given the score suggested by the formula! They feel that they can overrule the formula because they have additional information

The widespread inconsistency is probably due to the extreme context dependency of System 1. We know from studies of priming that unnoticed stimuli in our environment have a substantial influence on our thoughts and actions. These influences fluctuate from moment to moment. The brief pleasure of a cool breeze on a hot day may make you slightly more positive and optimistic about whatever you are evaluating at the time. The prospects of a convict being granted parole may change significantly during the time that elapses between successive food breaks in the parole judges’ schedule. Because you have little direct knowledge of what goes on in your mind, you will never know that you might have made a different judgment or reached a different decision under very slightly different circumstances. Formulas do not suffer from such problems. Given the same input, they always return the same answer. When predictability is poor—which it is in most of the studies reviewed by Meehl and his followers—inconsistency is destructive of any predictive validity. The research suggests a surprising conclusion: to maximize predictive accuracy, final decisions should be left to formulas, especially in low-validity environments.

To avoid halo effects, you must collect the information on one trait at a time, scoring each before you move on to the next one.

Herbert Simon’s definition of intuition in the introduction, but it will make more sense when I repeat it now: “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.”

How does the information that supports intuition get “stored in memory”? Certain types of intuitions are acquired very quickly. We have inherited from our ancestors a great facility to learn when to be afraid. Indeed, one experience is often sufficient to establish a long-term aversion and fear. Many of us have the visceral memory of a single dubious dish that still leaves us vaguely reluctant to return to a restaurant. All of us tense up when we approach a spot in which an unpleasant event occurred, even when there is no reason to expect it to happen again.

Learned fears are even more easily acquired.

Remember this rule: intuition cannot be trusted in the absence of stable regularities in the environment.

Psychotherapists have many opportunities to observe the immediate reactions of patients to what they say. The feedback enables them to develop the intuitive skill to find the words and the tone that will calm anger, forge confidence, or focus the patient’s attention. On the other hand, therapists do not have a chance to identify which general treatment approach is most suitable for different patients. The feedback they receive from their patients’ long-term outcomes is sparse, delayed, or (usually) nonexistent, and in any case too ambiguous to support learning from experience.

psychologist, the discrepancy between Seymour’s two judgments is striking.

The chances that a small business will survive for five years in the United States are about 35%. But the individuals who open such businesses do not believe that the statistics apply to them.

One of the benefits of an optimistic temperament is that it encourages persistence in the face of obstacles.

Overconfidence is another manifestation of WYSIATI: when we estimate a quantity, we rely on information that comes to mind and construct a coherent story in which the estimate makes sense. Allowing for the information that does not come to mind—perhaps because one never knew it—is impossible.

The result: “clinicians who were ‘completely certain’ of the diagnosis antemortem were wrong 40% of the time.” Here again, expert overconfidence is encouraged by their clients: “Generally, it is considered a weakness and a sign of vulnerability for clinicians to appear unsure. Confidence is valued over uncertainty and there is a prevailing censure against disclosing uncertainty to patients.” Experts who acknowledge the full extent of their ignorance may expect to be replaced by more confident competitors, who are better able to gain the trust of clients.

The main benefit of optimism is resilience in the face of setbacks.

overconfidence is a direct consequence of features of System 1 that can be tamed—but not vanquished.

Bernoulli observed that most people dislike risk (the chance of receiving the lowest possible outcome), and if they are offered a choice between a gamble and an amount equal to its expected value they will pick the sure thing. In fact a risk-averse decision maker will choose a sure thing that is less than expected value, in effect paying a premium to avoid the uncertainty. One hundred years before Fechner, Bernoulli invented psychophysics to explain this aversion to risk. His idea was straightforward: people’s choices are based not on dollar values but on the psychological values of outcomes, their utilities.

Problem 5: You are offered a gamble on the toss of a coin. If the coin shows tails, you lose $100. If the coin shows heads, you win $150. Is this gamble attractive? Would you accept it? To make this choice, you must balance the psychological benefit of getting $150 against the psychological cost of losing $100. How do you feel about it? Although the expected value of the gamble is obviously positive, because you stand to gain more than you can lose, you probably dislike it—most people do. The rejection of this gamble is an act of System 2, but the critical inputs are emotional responses that are generated by System 1. For most people, the fear of losing $100 is more intense than the hope of gaining $150. We concluded from many such observations that “losses loom larger than gains” and that people are loss averse. You can measure the extent of your aversion to losses by asking yourself a question: What is the smallest gain that I need to balance an equal chance to lose $100? For many people the answer is about $200, twice as much as the loss. The “loss aversion ratio” has been estimated in several experiments and is usually in the range of 1.5 to 2.5.

Loss aversion is built into the automatic evaluations of System 1.

Brain recordings also indicate that buying at especially low prices is a pleasurable event.

Veteran traders have apparently learned to ask the correct question, which is “How much do I want to have that mug, compared with other things I could have instead?” This is the question that Econs ask, and with this question there is no endowment effect, because the asymmetry between the pleasure of getting and the pain of giving up is irrelevant.

Some experimenters have reported that an angry face “pops out” of a crowd of happy faces, but a single happy face does not stand out in an angry crowd. The brains of humans and other animals contain a mechanism that is designed to give priority to bad news. By shaving a few hundredths of a second from the time needed to detect a predator, this circuit improves the animal’s odds of living long enough to reproduce.

The brain responds quickly even to purely symbolic threats. Emotionally loaded words quickly attract attention, and bad words (war, crime) attract attention faster than do happy words (peace, love). There is no real threat, but the mere reminder of a bad event is treated in System 1 as threatening.

The psychologist Paul Rozin, an expert on disgust, observed that a single cockroach will completely wreck the appeal of a bowl of cherries, but a cherry will do nothing at all for a bowl of cockroaches. As he points out, the negative trumps the positive in many ways, and loss aversion is one of many manifestations of a broad negativity dominance. Other scholars, in a paper titled “Bad Is Stronger Than Good,” summarized the evidence as follows: “Bad emotions, bad parents, and bad feedback have more impact than good ones, and bad information is processed more thoroughly than good. The self is more motivated to avoid bad self-definitions than to pursue good ones. Bad impressions and bad stereotypes are quicker to form and more resistant to disconfirmation than good ones.” They cite John Gottman, the well-known expert in marital relations, who observed that the long-term success of a relationship depends far more on avoiding the negative than on seeking the positive. Gottman estimated that a stable relationship requires that good interactions outnumber bad interactions by at least 5 to 1. Other asymmetries in the social domain are even more striking. We all know that a friendship that may take years to develop can be ruined by a single action.

Loss aversion refers to the relative strength of two motives: we are driven more strongly to avoid losses than to achieve gains. A reference point is sometimes the status quo, but it can also be a goal in the future: not achieving a goal is a loss, exceeding the goal is a gain. As we might expect from negativity dominance, the two motives are not equally powerful. The aversion to the failure of not reaching the goal is much stronger than the desire to exceed it.

These fierce competitors certainly do not make a conscious decision to slack off on birdie putts, but their intense aversion to a bogey apparently contributes to extra concentration on the task at hand.

favorable versions of the urns of problem A, with 37 white marbles replaced by red winning marbles in each urn. The improvement on the left is clearly superior to the improvement on the right, since each red marble gives you a chance to win $520,000 on the left and only $500,000 on the right. So you started in the first problem with a preference for the left-hand urn, which was then improved

My experience illustrates how terrorism works and why it is so effective: it induces an availability cascade. An extremely vivid image of death and damage, constantly reinforced by media attention and frequent conversations, becomes highly accessible, especially if it is associated with a specific situation such as the sight of a bus. The emotional arousal is associative, automatic, and uncontrolled, and it produces an impulse for protective action. System 2 may “know” that the probability is low, but this knowledge does not eliminate the self-generated discomfort and the wish to avoid it. System 1 cannot be turned off. The emotion is not only disproportionate to the probability, it is also insensitive to the exact level of probability. Suppose that two cities have been warned about the presence of suicide bombers. Residents of one city are told that two bombers are ready to strike. Residents of another city are told of a single bomber. Their risk is lower by half, but do they feel much safer?

Buying a ticket is immediately rewarded by pleasant fantasies, just as avoiding a bus was immediately rewarded by relief from fear. In both cases, the actual probability is inconsequential; only possibility matters. The original formulation of prospect theory included the argument that “highly unlikely events are either ignored or overweighted,

The idea of denominator neglect helps explain why different ways of communicating risks vary so much in their effects. You read that “a vaccine that protects children from a fatal disease carries a 0.001% risk of permanent disability.” The risk appears small. Now consider another description of the same risk: “One of 100,000 vaccinated children will be permanently disabled.” The second statement does something to your mind that the first does not: it calls up the image of an individual child who is permanently disabled by a vaccine; the 99,999 safely vaccinated children have faded into the background. As predicted by denominator neglect, low-probability events are much more heavily weighted when described in terms of relative frequencies (how many) than when stated in more abstract terms of “chances,” “risk,” or “probability” (how likely).

The emotional state has been well described by two Dutch psychologists, who noted that regret is “accompanied by feelings that one should have known better, by a sinking feeling, by thoughts about the mistake one has made and the opportunities lost, by a tendency to kick oneself and to correct one’s mistake, and by wanting to undo the event and to get a second chance.” Intense regret is what you experience when you can most easily imagine yourself doing something other than what you did.

Decision makers know that they are prone to regret, and the anticipation of that painful emotion plays a part in many decisions.

people expect to have stronger emotional reactions (including regret) to an outcome that is produced by action than to the same outcome when it is produced by inaction.

The asymmetry in the risk of regret favors conventional and risk-averse choices. The bias appears in many contexts. Consumers who are reminded that they may feel regret as a result of their choices show an increased preference for conventional options, favoring brand names over generics.

Losses are weighted about twice as much as gains in several contexts: choice between gambles, the endowment effect, and reactions to price changes. The loss-aversion coefficient is much higher in some situations.

You have been exposed to a disease which if contracted leads to a quick and painless death within a week. The probability that you have the disease is 1/1,000. There is a vaccine that is effective only before any symptoms appear. What is the maximum you would be willing to pay for the vaccine? Most people are willing to pay a significant but limited amount. Facing the possibility of death is unpleasant, but the risk is small and it seems unreasonable to ruin yourself to avoid it. Now consider a slight variation: Volunteers are needed for research on the above disease. All that is required is that you expose yourself to a 1/1,000 chance of contracting the disease. What is the minimum you would ask to be paid in order to volunteer for this program? (You would not be allowed to purchase the vaccine.) As you might expect, the fee that volunteers set is far higher than the price they were willing to pay for the vaccine. Thaler reported informally that a typical ratio is about 50:1. The extremely high selling price reflects two features of this problem. In the first place, you are not supposed to sell your health; the transaction is not considered legitimate and the reluctance to engage in it is expressed in a higher price. Perhaps most important, you will be responsible for the outcome if it is bad.

Tendencies to approach or avoid are evoked by the words, and we expect System 1 to be biased in favor of the sure option when it is designated as KEEP and against that same option when it is designated as LOSE.

The framing study yielded three main findings: A region that is commonly associated with emotional arousal (the amygdala) was most likely to be active when subjects’ choices conformed to the frame. This is just as we would expect if the emotionally loaded words KEEP and LOSE produce an immediate tendency to approach the sure thing (when it is framed as a gain) or avoid it (when it is framed as a loss). The amygdala is accessed very rapidly by emotional stimuli—and it is a likely suspect for involvement in System 1. A brain region known to be associated with conflict and self-control (the anterior cingulate) was more active when subjects did not do what comes naturally—when they chose the sure thing in spite of its being labeled LOSE. Resisting the inclination of System 1 apparently involves conflict. The most “rational” subjects—those who were the least susceptible to framing effects—showed enhanced activity in a frontal area of the brain that is implicated in combining emotion and reasoning to guide decisions. Remarkably, the “rational” individuals were not those who showed the strongest neural evidence of conflict. It appears that these elite participants were (often, not always) reality-bound with little conflict.

Decision makers tend to prefer the sure thing over the gamble (they are risk averse) when the outcomes are good.

The evidence comes from a comparison of the rate of organ donation in European countries, which reveals startling differences between neighboring and culturally similar countries. An article published in 2003 noted that the rate of organ donation was close to 100% in Austria but only 12% in Germany, 86% in Sweden but only 4% in Denmark. These enormous differences are a framing effect, which is caused by the format of the critical question. The high-donation countries have an opt out form, where individuals who wish not to donate must check an appropriate box. Unless they take this simple action, they are considered willing donors. The low-contribution countries have an opt-in form: you must check a box to become a donor. That is all. The best single predictor of whether or not people will donate their organs is the designation of the default option that will be adopted without having to check a box. Unlike other framing effects that have been traced to features of System 1, the organ donation effect is best explained by the laziness of System 2. People will check the box if they have already decided what they wish to do. If they are unprepared for the question, they have to make the effort of thinking whether they want to check the box. I imagine an organ donation form in which people are required to solve a mathematical problem in the box that corresponds to their decision.

I find it helpful to think of this dilemma as a conflict of interests between two selves (which do not correspond to the two familiar systems). The experiencing self is the one that answers the question: “Does it hurt now?” The remembering self is the one that answers the question: “How was it, on the whole?” Memories are all we get to keep from our experience of living, and the only perspective that we can adopt as we think about our lives is therefore that of the remembering self. A comment I heard from a member of the audience after a lecture illustrates the difficulty of distinguishing memories from experiences. He told of listening raptly to a long symphony on a disc that was scratched near the end, producing a shocking sound, and he reported that the bad ending “ruined the whole experience.” But the experience was not actually ruined, only the memory of it. The experiencing self had had an experience that was almost entirely good, and the bad end could not undo it, because it had already happened. My questioner had assigned the entire episode a failing grade because it had ended very badly, but that grade effectively ignored 40 minutes of musical bliss. Does the actual experience count for nothing?

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. What we learn from the past is to maximize the qualities of our future memories, not necessarily of our future experience. This is the tyranny of the remembering self.

The subjects who preferred the long episode were not masochists and did not deliberately choose to expose themselves to the worse experience; they simply made a mistake. If we had asked them, “Would you prefer a 90-second immersion or only the first part of it?” they would certainly have selected the short option. We did not use these words, however, and the subjects did what came naturally: they chose to repeat the episode of which they had the less aversive memory. The subjects knew quite well which of the two exposures was longer—we asked them—but they did not use that knowledge. Their decision was governed by a simple rule of intuitive choice: pick the option you like the most, or dislike the least. Rules of memory determined how much they disliked the two options, which in turn determined their choice. The cold-hand experiment, like my old injections puzzle, revealed a discrepancy between decision utility and experienced utility.

System 1 represents sets by averages, norms, and prototypes, not by sums.

We found that American women spent about 19% of the time in an unpleasant state, somewhat higher than French women (16%) or Danish women (14%). We called the percentage of time that an individual spends in an unpleasant state the U-index. For example, an individual who spent 4 hours of a 16-hour waking day in an unpleasant state would have a U-index of 25%. The appeal of the U-index is that it is based not on a rating scale but on an objective measurement of time. If the U-index for a population drops from 20% to 18%, you can infer that the total time that the population spent in emotional discomfort or pain has diminished by a tenth.

Attention is key. Our emotional state is largely determined by what we attend to, and we are normally focused on our current activity and immediate environment.

Some aspects of life have more effect on the evaluation of one’s life than on the experience of living. Educational attainment is an example. More education is associated with higher evaluation of one’s life, but not with greater experienced well-being. Indeed, at least in the United States, the more educated tend to report higher stress. On the other hand, ill health has a much stronger adverse effect on experienced well-being than on life evaluation. Living with children also imposes a significant cost in the currency of daily feelings—reports of stress and anger are common among parents, but the adverse effects on life evaluation are smaller. Religious participation also has relatively greater favorable impact on both positive affect and stress reduction than on life evaluation. Surprisingly, however, religion provides no reduction of feelings of depression or worry. An analysis of more than 450,000 responses to the Gallup-Healthways Well-Being Index, a daily survey of 1,000 Americans, provides a surprisingly definite answer to the most frequently asked question in well-being research: Can money buy happiness? The conclusion is that being poor makes one miserable, and that being rich may enhance one’s life satisfaction, but does not (on average) improve experienced well-being.