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Editor’s Note: This is the seventh book review we are publishing as part of our Get Paid to Read contest. Last week, we published This Time is Different by Carmen M. Reinhart and Kenneth S. Rogoff which was reviewed by Zac Lindsey.
This week, Rupert Brauch reviews Thinking, Fast and Slow by Daniel Kahneman. Rupert is an experienced veteran of the tech industry, and enjoys skiing and other adventures in California’s Sierra Nevada mountains.
Thinking Fast and Slow focuses on two distinct systems of thought: System 1, which quickly forms intuitive thoughts and judgments, and System 2, which is slower but capable of more logical and reasoned analysis.
The book is based on Daniel Kahneman’s lifelong research collaboration with Amos Tversky and others in the field, many of whom were inspired by Kahneman and Tversky’s work.
The book is divided into five sections. The first section explores the two systems. The remaining four sections are informed by this exploration. However, the final two sections can be comprehended independently, offering standalone insights.
The first section begins by describing the differences between the two systems. Kahneman notes that the systems are not separate entities but are shorthand ways of speaking of the way our minds operate. System 1 involves thoughts and actions that we perform quickly and automatically, often without thinking about them. It is capable of forming many associations in parallel. For example, quickly judging a person’s mood, or answering questions where the answers come to you right away are functions of system 1. Highly trained people, such as chess masters, can recognize complex patterns as part of system 1 thinking. System 2, on the other hand, requires focused attention. For example, solving a non-trivial arithmetic problem or driving through a narrow space are functions of system 2. It is not possible to perform other tasks while performing a system 2 task.
Kahneman then describes the interaction between the two systems and their limitations. When the systems are working well, system 1 suggests answers, while system 2 validates or refutes the answer. System 1 operates based on heuristics rather than analytical thought, so it is subject to many biases, such as anchoring, availability bias, causal bias, and overconfidence. System 1 is incapable of performing any kind of statistical analysis. System 2 is capable of correcting the errors of System 1. However, system 2 requires effort, and Kahneman describes it as lazy. More often than not, system 2 will accept the biased conclusions of system 1. The greatest value of the book is to make readers aware of these biases, so that we may with effort, correct them. Kahneman demonstrates that even experts in economics, statistics, and psychology frequently demonstrate cognitive biases and make errors in statistical analysis without realizing it. Often, they will not recognize their mistakes, even after they are pointed out.
The third section explores the problem of overconfidence in detail. We often give undue weight to skill in past successes of ourselves and others, when luck was a large factor. This is due to a results bias. Kahneman gives the example of the founders of Google, who were no doubt brilliant but would not have succeeded without also having some lucky breaks. There were others active in the field at the same time who might have succeeded if they had been luckier. We can also become overconfident because many of our predictions are never checked. I thought of a technical analysis where technicians make all sorts of bold predictions based on stock charts, but their predictions are rarely back-tested. Kahneman demonstrates that this is true of experts in many fields and that simple formulas often make better predictions than expert judgments. Groups are also subject to overconfidence. Kahneman suggests that groups be required to conduct a “pre-mortem,” in which the group explains the reasons for a hypothetical future failure of a plan.
The fourth section summarizes Kahneman’s work in prospect theory, for which he won a Nobel prize in economics, despite not having been trained as an economist. Prospect theory attempts to explain how humans make decisions. This contrasts with traditional decision theory, in which humans are assumed to be perfectly rational. Prospect theory is based on changes in utility, as opposed to absolute utility. It recognizes that decisions are often made based on how the question is framed and that most people are loss-averse and usually risk-averse. People often overestimate the frequency of rare events, because of the event’s emotional weight, or because such events are heavily publicized.
The final section addresses the concept of the “two selves,” the remembering self and the experiencing self. The remembering self is a creature of the past, while the experiencing self lives in the present. People usually make decisions based on their memories of events, rather than the life experience that will result from the decision. Kahneman explains that we should make decisions based on expected utility rather than memories, partly because memories are often inaccurate. People often neglect happiness throughout an experience in favor of some salient part of that experience. This often leads to poor decisions because they make inaccurate estimations of the happiness that the decision will bring.
Perhaps because of Kahneman’s work on overconfidence, he casts a critical eye on his theories. He will often point out flaws or potential objections to his theories, or present alternative explanations. When he had a strong disagreement with another scientist about the reliability of expert opinions, he initiated an “adversarial collaboration” that lasted several years and resulted in a joint publication. Although they did not come to a full agreement, the resulting view was more nuanced than either of their initial views.
The book is rich with insights that are applicable to real-life situations. Some of these insights struck a personal chord with me due to my own life experiences. However, each reader will undoubtedly find their own value in Kahneman’s ideas. Kahneman was not only a psychologist, social scientist, and economist, but also a philosopher.