Jonathan Lu's Reviews > Thinking, Fast and Slow

The renowned tome of behavioral economics / social psychology from the famed Princeton economist and best friend to Chicago's Richard Thaler. Having never taken psych in college, I'm of course familiar with concepts such as confirmation bias from years of reading Levitt, Gladwell, Sunstein, etc. but never knew the official labels. The book can be summed up as Gladwell would agree with in Blink: "Our everyday intuitive abilities are no less marvelous than the striking insights of an experienced firefighter or physician, only more common." [p15]
"intuitive heuristics: when faced with a difficult question, we often answer an easier one instead, usually without noticing the substitution." [p17]
Kanneman spends much of the book describing the different modes of thinking which he terms system 1 and 2: instinctive/involuntary vs. calculated/methodical.
“Constantly questioning our own thinking would be impossibly tedious, and System 2 is much too slow and inefficient to serve as a substitute for System 1 in making routine decisions. The best we can do is a compromise: learn to recognize situations in which mistakes are likely and try harder to avoid significant mistakes when the stakes are high. The premise of this book is that it is easier to recognize other people’s mistakes than our own.” [p30]
Impact of cognitive strain. Experiment conducted in which 40 students took a test of logic puzzles, where font was either easily legible or difficult to read: “90% of the students who saw the CRT in normal font made at least one mistake in the test, but the proportion dropped to 35% when the font was barely legible. You read this correctly: performance was better with the bad font. Cognitive strain, whatever its source, mobilizes System 2, which is more likely to reject the intuitive answer suggested by System 1.” [p69]
Impact of exposure effect. “the words that were presented more frequently were rated much more favorably than the words that had been shown only once or twice.” [p70]
“Mood evidently affects the operation of System 1: when we are uncomfortable and unhappy, we lose touch with our intuition.” […] “A happy mood loosens the control of System 2 over performance: when in a good mood, people become more intuitive and more creative but also less vigilant and more prone to logical errors.” [p73]
The fallacy of groupthink: “Allowing the observers to influence each other effectively reduces the size of the sample, and with it the precision of the group estimate.” [p89]
The effect of judging a book by its cover, or reading a face. “As expected, the effect of facial competence on voting is about three times larger for information-poor and TV-prone voters than for others who are better informed and watch less television.” [p96]
The concept of going on a streak in sports: “Of course, some players are more accurate than others, but the sequence of successes and missed shots satisfies all tests of randomness. The hot hand is entirely in the eye of the beholders, who are consistently too quick to perceive order and causality in randomness. The hot hand is a massive and widespread cognitive illusion.” […] “We are far too willing to reject the belief that much of what we see in life is random.” [p120]
The law of small numbers or the danger of trusting small samples sizes, as shown by a study of the highest ranked schools that tend to be those that are smallest. Causation or causality? “The truth is that small schools are not better on average, they are simply more variable.” [p121]
“anchoring effect. It occurs when people consider a particular value for an unknown quantity before estimating that quantity.” [p122]
“Maintaining one’s vigilance against biases is a chore – but the chance to avoid a costly mistake is sometimes worth the effort.” [p134]
“estimates of causes of death are warped by media coverage. The coverage is itself biased toward novelty and poignancy. The media do not just shape what the public is interested in, but also are shaped by it. Editors cannot ignore the public’s demands that certain topics and viewpoints receive extensive coverage.” [p141] So should we allow the public to impact policy (risk of populism)? “Cass Sunstein would seek mechanisms that insulate decision makers from public pressures, letting the allocation of resources be determined by impartial experts who have a broad view of all risks and of the resources available to reduce them.” [p148]
“Frowning, as we have seen, generally increases the vigilance of System 2 and reduces both overconfidence and the reliance on intuition.” [p155]
“the ultimate test of an explanation is whether it would have made the event predictable in advance. No story of Google’s unlikely success will meet that test, because no story can include the myriad of events that would have caused a different outcome. The human mind does not deal well with nonevents.” [p199]
“Hindsight bias has pernicious effects on the evaluations of decision makers. It leads observers to assess the quality of a decision not by whether the process was sound but by whether its outcome was good or bad.” […] “Because adherence to standard operating procedures is difficult to second-guess, decision-makers who expect to have their decisions scrutinized with hindsight and driven to bureaucratic solutions – and to an extreme reluctance to take risks.” [p204]
“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.” [p216]
“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.” [p219]
“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 about the case, but they are wrong more often than not. According to Meehl, there are few circumstances under which it is a good idea to substitute judgment for a formula” [p224]
“Intuition is nothing more and nothing less than recognition” [p237]
“Loss aversion is built into the automatic evaluations of System 1.” [p293]
“The fundamental ideas of prospect theory are that reference points exist, and that losses loom larger than corresponding gains.” [p294]
“the long-term success of a relationship depends far more on avoiding the negative than on seeking the positive.” [p299]
“Possibility and certainty have similarly powerful effects in the domain of losses. When a loved one is wheeled into surgery, a 5% risk that an amputation will be necessary is very bad – much more than half as bad as a 10% risk. 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.” [p308]
“The sunk-cost fallacy keeps people for too long in poor jobs, unhappy marriages, and uncompromising research projects.” [p342]
Describing the driver before car seats: “The taboo tradeoff against accepting any increase in risk is not an efficient way to use the safety budget. In fact, the resistance may be motivated by a selfish fear of regret more than by a wish to optimize the child’s safety.” [p347] “Their recommendation is that you should not put too much weight on regret; even if you have some, it will hurt less than you now think.” [p348]
“Decision makers tend to prefer the sure thing over the gamble (they are risk averse) when the outcomes are good. They tend to reject the sure thing and accept the gamble (they are risk seeking) when both outcomes are negative.” [p364] “As expected from the previous analysis, a large majority of subjects made a risk averse choice for the sure gain over the positive gamble in the first decision, and an even larger majority of subjects made a risk seeking choice for the gamble over the sure loss in the second decision.” [p440]