Thinking Fast & Slow by Daniel Kahneman

Thinking Fast & Slow by Daniel Kahneman Student Name Institutional Affiliation Thinking Fast & Slow by Daniel Kahneman Introduction Daniel Kahneman is a psychologist and economist who won the Nobel memorial prize in 2002 for his outstanding contribution to the study of the psychology of judgment and decision-making, as well as behavioral economics. His works are aimed at challenging the assumptions of human rationality and it is the leitmotif of the book, Thinking Fast and Slow. He explores several ideas throughout the book which he has split into five sections with each section specifically focusing on a single aspect of how we think the way we do. One of the main ideas he explores what he terms as ‘two systems’ in our minds. He describes the first system as fast and automatic and the second as slow and logical. This forms the basis of the rest of the arguments he discusses throughout the book in the subsequent sections. Understanding the two systems is key to understanding the rest of the book. In the second section, he explores anchoring, biases and ordering effects explaining how people tend to guess the value of something when they lack sufficient information to form accurate judgments. Thirdly, he discusses concepts that make people be overconfident whilst they are wrong. In the fourth section, he discusses choices where he covers the concept of loss aversion among others. Lastly, he discusses two selves and how we are wired to have internal conflicts in our decision-making processes. These are the sketch ideas that Kahneman has explored throughout the book and they illuminate at how humans are naturally irrational and how they can address that issue. I will do a more detailed review of each section as Kahneman has explored them and discuss their overarching themes. Two Systems In the first section, Kahneman discusses two systems of thinking which he believes every person has. System 1 which he considers fast and automatic. It is the system that autocompletes and makes general conclusions based on sketchy information. It is the system that autocompletes ‘bread and….’. Kahneman notes that this system does not require focus or deliberate effort and it is just instinctive. He also notes that it is very influential in our lives. It is a product of our evolutionary machinery and it has come to help us to survive. It is not always right but if it is trained hard enough it can become intuitive. It follows the principle by Gladwell that it takes about 10,000 hours of training to master a skill. Simply, it is usually the process of making System 1 to become automatic with decision making after the training. We can strive to learn how to silence system 1 in a more complex situation and engage system 2 to help make rational decisions. Kahneman describes System 2 as logical and slow. He claims that it takes a deliberate effort to engage it. System 2 evaluates the information it has and tries to make sense of it to come up with a logical answer. Since System 2 is deliberate, it needs more energy to activate and engage. It is the support system of System 1 when it hits a snag and cannot come up with an automatic response. Since it is mentally draining, it takes concentration and it is evident physiologically. The pupils tend to dilate, muscle tense up a little and blood pressure increases. Once you get the solution or give up on finding it, the pupils go back to normal and muscles relax. It is engaged in often some seemingly simple activities such as deliberately changing your natural pace of walking to walk faster. System two is the conscious self of a person and it is the system that makes decisions, choices and holds our beliefs. Further, Kahneman notes that the two systems have to co-exist. Neither can be the only for anyone and whether we vilify system one, it is also important to us. The resources and concentration needed for System 2 are unsustainable as a thinking system because we would have to actively think of simple things like walking and swallowing. We cannot live on system one because it is riddled with inaccuracies based on its assumptions which are sometimes wrong. It is evolutionary and its processes are not entirely accurate and, in most cases, where it jumps into conclusion it is often wrong. Kahneman notes that a simple way of showing how erroneous System 1 can be is using a simple problem; If a baseball bat and a ball cost a total of $1.10, and the bat costs $1 more than the ball, then how much does the ball cost? Most people guess that the answer is $0.10 which is wrong because the cost of the combine of the two would become $1.20. The author also noted that System 1 is the hero and system two is a support system of System 1. System two is always in the background analyzing System 1’s actions and control them by encouraging, suppressing or modifying them. In this section, the author also describes the concept of risk and points out that it is our intention that we used to navigate dangers and uncertainties. There is no real risk or objective risk. Further, Kahneman claims that our two systems of thinking are capable of failure because of laziness and ignorance. He points out the very nature of system one of jumping into conclusion will have errors and if ignorance and or laziness to scour through the information to come up with accurate answers. To accurately parse issues that we are confounded with, our natural disposition to rely on System 1 is not enough and we will continue to make irrational decisions. Therefore, it is important to learn how to engage system two and parse through the evidence objectively to make rational decisions. Heuristics and Biases Kahneman points out that the two systems differ when in doubt. System 1 cannot experience doubt because of its fast and automated process of using the information it has. On the other hand, System 2 experiences doubt and there arises a problem in the decision-making process that a person has to take when presented with some information. For example, he explores anchoring. Kahneman describes anchoring as ‘the effect that occurs when people consider a particular value for an unknown quantity before estimating that quantity: the estimates stay close to the number that people considered. Each system produces different anchoring effects: a deliberate process of adjustment (System two). And a priming effect, an automatic manifestation of System one.’ In a random example, Kahneman points out the way humans are vulnerable to anchors. He asks two groups what they think the height of the tallest redwood tree in the world is. The answer is framed such that group one is anchored with 180ft while group 2 is anchored with 1200 ft. The questions were; Is the height of the tallest redwood more or less than 1200ft and what’s your guess of its height. For the second group, ‘1200ft’ was now swapped with 180. The average height of the first group whose question was anchored with ‘180ft’ had an average of 244ft whilst the group which had 1200 ft as the anchor had an average of 844ft. The difference is obvious and Kahneman explains that this anchoring effect is used in business to sell products and services at a higher price. The book also details another subtle bias that humans inherently have known as the ordering effect. First impressions matter and the way information is presented is more likely to affect how a situation, a person or phenomenon is judged. A simple example the author posed to the reader was what they thought of two people, Amos and Barry; Amos: intelligent, hard-working, strategic, suspicious, selfish, Barry: selfish, suspicious, strategic, hard-working, intelligent. It is easy to think that Amos is more likable even though the words are identical only the order in which they are presented is different. It is a problem we are all likely to commit or we have been a victim to. These blind spots in thinking are what Kahneman describes as heuristics and they have an inherent capacity to influence our thinking such that we even form conclusions and defend them from erred thought process. The author also explores the concept of availability arguing that we make decisions based on the available information present to us. He points out that the media is a major source of information that makes people erroneously see the world differently. If a person continually watches news and notices that there has been an increased reporting of terrorism or plane crashes, he may develop fears of traveling or flying because he/she thinks he might be involved in a terrorist attack or plane crash. Statistically, the odds of that person dying from either of these happenings are very small. They may be even smaller than being killed by a cow or attacked by a shark. The reason why the person is worried or afraid is the availability of the information that prompts the individual to think that odds are stacked against his/her favor even wh...