Thinking, Fast and Slow

by Daniel Kahneman

“She is very confident in her decision, but subjective confidence is a poor index of the accuracy of a judgment.”

About confidence in intuition

I eventually learned three lessons from it. The first was immediately apparent: I had stumbled onto a distinction between two profoundly different approaches to forecasting, which Amos and I later labeled the inside view and the outside view. The second lesson was that our initial forecasts of about two years for the completion of the project exhibited a planning fallacy. Our estimates were closer to a best-case scenario than to a realistic assessment. I was slower to accept the third lesson, which I call irrational perseverance: the folly we displayed that day in failing to abandon the project. Facing a choice, we gave up rationality rather than give up the enterprise.

About insight

“adversarial collaborator” who generally defends intuitive decision making against claims of bias and is typically hostile to algorithms. He labels his proposal the premortem. The procedure is simple: when the organization has almost come to an important decision but has not formally committed itself, Klein proposes gathering for a brief session a group of individuals who are knowledgeable about the decision. The premise of the session is a short speech: “Imagine that we are a year into the future. We implemented the plan as it now exists. The outcome was a disaster. Please take 5 to 10 minutes to write a brief history of that disaster.”

Great tool

“They have an illusion of control. They seriously underestimate the obstacles.”

Optimism lol

There are goods that the poor need and cannot afford, so they are always “in the losses.” Small amounts of money that they receive are therefore perceived as a reduced loss, not as a gain. The money helps one climb a little toward the reference point, but the poor always remain on the steep limb of the value function. People who are poor think like traders, but the dynamics are quite different. Unlike traders, the poor are not indifferent to the differences between gaining and giving up. Their problem is that all their choices are between losses. Money that is spent on one good is the loss of another good that could have been purchased instead. For the poor, costs are losses.

Still true for me (

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.

So true

The sensitivity to threats extends to the processing of statements of opinions with which we strongly disagree. For example, depending on your attitude to euthanasia, it would take your brain less than one-quarter of a second to register the “threat” in a sentence that starts with “I think euthanasia is an acceptable/unacceptable …”

Trick people into giving unwanted information about their opinions?

Paul Rozin,

To research

I sympathize with your aversion to losing any gamble, but it is costing you a lot of money. Please consider this question: Are you on your deathbed? Is this the last offer of a small favorable gamble that you will ever consider? Of course, you are unlikely to be offered exactly this gamble again, but you will have many opportunities to consider attractive gambles with stakes that are very small relative to your wealth. You will do yourself a large financial favor if you are able to see each of these gambles as part of a bundle of small gambles and rehearse the mantra that will get you significantly closer to economic rationality: you win a few, you lose a few. The main purpose of the mantra is to control your emotional response when you do lose. If you can trust it to be effective, you should remind yourself of it when deciding whether or not to accept a small risk with positive expected value. Remember these qualifications when using the mantra: • It works when the gambles are genuinely independent of each other; it does not apply to multiple investments in the same industry, which would all go bad together. • It works only when the possible loss does not cause you to worry about your total wealth. If you would take the loss as significant bad news about your economic future, watch it! • It should not be applied to long shots, where the probability of winning is very small for each bet. If you have the emotional discipline that this rule requires, you will never consider ...

How to bet

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.

Opt in vs opt out

“hedonimeter,”

Decisions that do not produce the best possible experience and erroneous forecasts of future feelings—both are bad news for believers in the rationality of choice. The cold-hand study showed that we cannot fully trust our preferences to reflect our interests, even if they are based on personal experience, and even if the memory of that experience was laid down within the last quarter of an hour!

Bad news for rational ones

In intuitive evaluation of entire lives as well as brief episodes, peaks and ends matter but duration does not.

That's sad

we all share the intuition that it is much worse for labor to last 24 than 6 hours, and that 6 days at a good resort is better than 3. Duration appears to matter in these situations, but this is only because the quality of the end changes with the length of the episode. The mother is more depleted and helpless after 24 hours than after 6, and the vacationer is more refreshed and rested after 6 days than after 3. What truly matters when we intuitively assess such episodes is the progressive deterioration or improvement of the ongoing experience, and how the person feels at the end.

How to make great vacations?

For another thought experiment, imagine you face a painful operation during which you will remain conscious. You are told you will scream in pain and beg the surgeon to stop. However, you are promised an amnesia-inducing drug that will completely wipe out any memory of the episode. How do you feel about such a prospect? Here again, my informal observation is that most people are remarkably indifferent to the pains of their experiencing self. Some say they don’t care at all. Others share my feeling, which is that I feel pity for my suffering self but not more than I would feel for a stranger in pain. Odd as it may seem, I am my remembering self, and the experiencing self, who does my living, is like a stranger to me.

Odd.

I proposed that it made sense to say that “Helen was happy in the month of March” if she spent most of her time engaged in activities that she would rather continue than stop, little time in situations she wished to escape, and—very important because life is short—not too much time in a neutral state in which she would not care either way. There are many different experiences we would rather continue than stop, including both mental and physical pleasures.

Great definition

Experience sampling

To try

Not surprisingly, a headache will make a person miserable, and the second best predictor of the feelings of a day is whether a person did or did not have contacts with friends or relatives. It is only a slight exaggeration to say that happiness is the experience of spending time with people you love and who love you.

Wholesome !

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.

No moneyy makes you sad

Experienced well-being is on average unaffected by marriage, not because marriage makes no difference to happiness but because it changes some aspects of life for the better and others for the worse.

Marriage matters little

The effect of income on life satisfaction was larger for those who had listed being well-off financially as an essential goal: .57 point on a 5-point scale. The corresponding difference for those who had indicated that money was not important was only .12.

What You want matters

one recipe for a dissatisfied adulthood is setting goals that are especially difficult to attain.

Me fml(

Nothing in life is as important as you think it is when you are thinking about it.

Focusing illusion

A rational person can prefer being hated over being loved, so long as his preferences are consistent. Rationality is logical coherence—reasonable or not. Econs are rational by this definition, but there is overwhelming evidence that Humans cannot be.

Irrational Humans

Save More Tomorrow is a financial plan that firms can offer their employees. Those who sign on allow the employer to increase their contribution to their saving plan by a fixed proportion whenever they receive a raise. The increased saving rate is implemented automatically until the employee gives notice that she wants to opt out of it. This brilliant innovation, proposed by Richard Thaler and Shlomo Benartzi in 2003, has now improved the savings rate and brightened the future prospects of millions of workers. It is soundly based in the psychological principles that readers of this book will recognize. 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. All this, of course, without compelling anyone to do anything he does not wish to do and without any misdirection or artifice.

Great for people and Banks

optimal experience”: Mihaly Csikszentmihalyi, Flow: The Psychology of Optimal Experience (New York: Harper, 1990).

To check

Reminders of money: Kathleen D. Vohs, “The Psychological Consequences of Money,” Science 314 (2006): 1154–56.

Money priming

virtues of checklists: Atul Gawande, The Checklist Manifesto: How to Get Things Right (New York: Metropolitan Books, 2009).

Virue of checklists