Thinking, Fast and Slow

by Daniel Kahneman

“I don’t spend a lot of time taking polls around the world to tell me what I think is the right way to act. I’ve just got to know how I feel” (George W. Bush, November 2002).

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

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

The illusion of skill is not only an individual aberration; it is deeply ingrained in the culture of the industry. Facts that challenge such basic assumptions—and thereby threaten people’s livelihood and self-esteem—are simply not absorbed. The mind does not digest them.

The illusion of skill is not only an individual aberration; it is deeply ingrained in the culture of the industry. Facts that challenge such basic assumptions—and thereby threaten people’s livelihood and self-esteem—are simply not absorbed. The mind does not digest them.

We know that people can maintain an unshakable faith in any proposition, however absurd, when they are sustained by a community of like-minded believers. Given the professional culture of the financial community, it is not surprising that large numbers of individuals in that world believe themselves to be among the chosen few who can do what they believe others cannot.

The idea that the future is unpredictable is undermined every day by the ease with which the past is explained.

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.

It is hard to think of the history of the twentieth century, including its large social movements, without bringing in the role of Hitler, Stalin, and Mao Zedong. But there was a moment in time, just before an egg was fertilized, when there was a fifty-fifty chance that the embryo that became Hitler could have been a female.

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.

When do they display an illusion of validity? The answer comes from the two basic conditions for acquiring a skill: an environment that is sufficiently regular to be predictable an opportunity to learn these regularities through prolonged practice

Confidence is valued over uncertainty

For most people, the fear of losing $100 is more intense than the hope of gaining $150.