Thinking, Fast and Slow

by Daniel Kahneman

the negative trumps the positive in many ways, and loss aversion is one of many manifestations of a broad negativity dominance

“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.”

the long-term success of a relationship depends far more on avoiding the negative than on seeking the positive.

relative strength of two motives: we are driven more strongly to avoid losses than to achieve gains.

The aversion to the failure of not reaching the goal is much stronger than the desire to exceed it.

The concessions you make to me are my gains, but they are your losses; they cause you much more pain than they give me pleasure. Inevitably, you will place a higher value on them than I do. The same is true, of course, of the very painful concessions you demand from me, which you do not appear to value sufficiently!

Negotiations over a shrinking pie are especially difficult, because they require an allocation of losses. People tend to be much more easygoing when they bargain over an expanding pie.

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.

Because of the possibility effect, we tend to overweight small risks and are willing to pay far more than expected value to eliminate them altogether. The psychological difference between a 95% risk of disaster and the certainty of disaster appears to be even greater; the sliver of hope that everything could still be okay looms very large. Overweighting of small probabilities increases the attractiveness of both gambles and insurance policies.

To appreciate the asymmetry between the possibility effect and the certainty effect, imagine first that you have a 1% chance to win $1 million. You will know the outcome tomorrow. Now, imagine that you are almost certain to win $1 million, but there is a 1% chance that you will not. Again, you will learn the outcome tomorrow. The anxiety of the second situation appears to be more salient than the hope in the first.

when you do not ignore the very rare events, you will certainly overweight them. Most of us spend very little time worrying about nuclear meltdowns or fantasizing about large inheritances from unknown relatives.

When you pay attention to a threat, you worry—and the decision weights reflect how much you worry. Because of the possibility effect, the worry is not proportional to the probability of the threat. Reducing or mitigating the risk is not adequate; to eliminate the worry the probability must be brought down to zero.

people attach values to gains and losses rather than to wealth, and the decision weights that they assign to outcomes are different from probabilities.

lottery ticket is the ultimate example of the possibility effect. Without a ticket you cannot win, with a ticket you have a chance, and whether the chance is tiny or merely small matters little. Of course, what people acquire with a ticket is more than a chance to win; it is the right to dream pleasantly of winning.

People are willing to pay much more for insurance than expected value—which is how insurance companies cover their costs and make their profits. Here again, people buy more than protection against an unlikely disaster; they eliminate a worry and purchase peace of mind.

Many unfortunate human situations unfold in the top right cell. This is where people who face very bad options take desperate gambles, accepting a high probability of making things worse in exchange for a small hope of avoiding a large loss. Risk taking of this kind often turns manageable failures into disasters. The thought of accepting the large sure loss is too painful, and the hope of complete relief too enticing, to make the sensible decision that it is time to cut one’s losses.

the losing side in wars often fights long past the point at which the victory of the other side is certain, and only a matter of time.

Plaintiffs with frivolous claims are likely to obtain a more generous settlement than the statistics of the situation justify.

systematic deviations from expected value are costly in the long run—and this rule applies to both risk aversion and risk seeking.

Consistent overweighting of improbable outcomes—a feature of intuitive decision making—eventually leads to inferior outcomes.

Individual investors can avoid that curse, achieving the emotional benefits of broad framing while also saving time and agony, by reducing the frequency with which they check how well their investments are doing. Closely following daily fluctuations is a losing proposition, because the pain of the frequent small losses exceeds the pleasure of the equally frequent small gains.

Decision makers who are prone to narrow framing construct a preference every time they face a risky choice.

Optimists believe that the decisions they make are more prudent than they really are, and loss-averse decision makers correctly reject marginal propositions that they might otherwise accept.

main motivators of money-seeking are not necessarily economic.

money is a proxy for points on a scale of self-regard and achievement. These rewards and punishments, promises and threats, are all in our heads. We carefully keep score of them. They shape our preferences and motivate our actions, like the incentives provided in the social environment. As a result, we refuse to cut losses when doing so would admit failure, we are biased against actions that could lead to regret, and we draw an illusory but sharp distinction between omission and commission, not doing and doing, because the sense of responsibility is greater for one than for the other.

The ultimate currency that rewards or punishes is often emotional, a form of mental self-dealing that inevitably creates conflicts of interest when the individual acts as an agent on behalf of an organization.

A rational decision maker is interested only in the future consequences of current investments. Justifying earlier mistakes is not among the Econ’s concerns.

The decision to invest additional resources in a losing account, when better investments are available, is known as the sunk-cost fallacy, a costly mistake that is observed in decisions large and small.

Intense regret is what you experience when you can most easily imagine yourself doing something other than what you did.

Regret is one of the counterfactual emotions that are triggered by the availability of alternatives to reality.

Associative memory contains a representation of the normal world and its rules. An abnormal event attracts attention, and it also activates the idea of the event that would have been normal under the same circumstances.

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.

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.

Our preferences are about framed problems, and our moral intuitions are about descriptions, not about substance.

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.

Caring for people often takes the form of concern for the quality of their stories, not for their feelings.

We feel pity for a man who died believing in his wife’s love for him, when we hear that she had a lover for many years and stayed with her husband only for his money. We pity the husband although he had lived a happy life. We feel the humiliation of a scientist who made an important discovery that was proved false after she died, although she did not experience the humiliation.

Most important, of course, we all care intensely for the narrative of our own life and very much want it to be a good story, with a decent hero.

Odd as it may seem, I am my remembering self, and the experiencing self, who does my living, is like a stranger to me.

Our emotional state is largely determined by what we attend to, and we are normally focused on our current activity and immediate environment. There are exceptions, where the quality of subjective experience is dominated by recurrent thoughts rather than by the events of the moment. When happily in love, we may feel joy even when caught in traffic, and if grieving, we may remain depressed when watching a funny movie. In normal circumstances, however, we draw pleasure and pain from what is happening at the moment, if we attend to it.

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.

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.

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 adve...

Religious participation also has relatively greater favorable impact on both positive affect and stress reduction than on life evaluation. Surprisingly, however, religion provides...

easiest way to increase happiness is to control your use of time. Can you find more time to do the things you enjoy doing?”

The goals that people set for themselves are so important to what they do and how they feel about it that an exclusive focus on experienced well-being is not tenable. We cannot hold a concept of well-being that ignores what people want. On the other hand, it is also true that a concept of well-being that ignores how people feel as they live and focuses only on how they feel when they think about their life is also untenable. We must accept the complexities of a hybrid view, in which the well-being of both selves is considered.

We can infer from the speed with which people respond to questions about their life, and from the effects of current mood on their responses, that they do not engage in a careful examination when they evaluate their life. They must be using heuristics, which are examples of both substitution and WYSIATI.

the focusing illusion, which can be described in a single sentence: Nothing in life is as important as you think it is when you are thinking about it.

The focusing illusion creates a bias in favor of goods and experiences that are initially exciting, even if they will eventually lose their appeal. Time is neglected, causing experiences that will retain their attention value in the long term to be appreciated less than they deserve to be.