Thinking, Fast and Slow

by Daniel Kahneman

People tend to assess the relative importance of issues by the ease with which they are retrieved from memory—and this is largely determined by the extent of coverage in the media.

We are prone to overestimate how much we understand about the world and to underestimate the role of chance in events.

A remarkable aspect of your mental life is that you are rarely stumped.

System 1 is highly adept in one form of thinking—it automatically and effortlessly identifies causal connections between events, sometimes even when the connection is spurious.

Anchoring results from this associative activation. Whether the story is true, or believable, matters little, if at all.

As long ago as pharaonic Egypt, societies have tracked the high-water mark of rivers that periodically flood—and have always prepared accordingly, apparently assuming that floods will not rise higher than the existing high-water mark. Images of a worse disaster do not come easily to mind.

Regression effects are ubiquitous, and so are misguided causal stories to explain them. A well-known example is the “Sports Illustrated jinx,” the claim that an athlete whose picture appears on the cover of the magazine is doomed to perform poorly the following season. Overconfidence and the pressure of meeting high expectations are often offered as explanations.

A general limitation of the human mind is its imperfect ability to reconstruct past states of knowledge, or beliefs that have changed.

Because luck plays a large role, the quality of leadership and management practices cannot be inferred reliably from observations of success.

Since then, my questions about the stock market have hardened into a larger puzzle: a major industry appears to be built largely on an illusion of skill.

clients. Nevertheless, the evidence from more than fifty years of research is conclusive: for a large majority of fund managers, the selection of stocks is more like rolling dice than like playing poker.

The subjective experience of traders is that they are making sensible educated guesses in a situation of great uncertainty. In highly efficient markets, however, educated guesses are no more accurate than blind guesses.

Organizations are better than individuals when it comes to avoiding errors, because they naturally think more slowly and have the power to impose orderly procedures.

There is much to be done to improve decision making. One example out of many is the remarkable absence of systematic training for the essential skill of conducting efficient meetings.

Risky choices, such as whether or not to take an umbrella and whether or not to go to war, are made without advance knowledge of their consequences.