Daniel Kahneman is an American-Israeli psychologist known for his work on the psychology of judgment and decision-making, cognitive biases and fallacies, as well as behavioral economics, for which he was awarded the Nobel Prize in Economic Sciences in 2002.
This book encapsulates much of the work Kahneman has done in his lifetime.
I’m an (admittedly amateur) psychology buff and a huge proponent of divulging information about how humans make decisions as well as incongruencies in societal norms.
The main premise of the book is that there are two systems of thinking within us. System 1 (fast) thinking which is intuitive, based on past experiences, most frequently used, and System 2 (slow) which is responsible for deep thinking and solving the problems to which an answer isn’t immediate (my favorite comparative example is- System 2 comes into effect when asked to answer 16×37 as opposed to 2+2).
We always want the most cognitive ease according to Kahneman. This results in System 1 thinking largely ruling over our decision making, planning, etc. He often calls System 2 “lazy.”
Now onto my favorite topics.
Kahneman describes heuristics as the shortcuts our minds use to make quick judgments. The dictionary definition is “enabling a person to discover or learn something for themselves.” What’s encompassed here is automatic decision making or intuition.
The affect heuristic comes from emotional drive. One reacts in an emotional, sometimes nonlogical way due to present emotions or mood. Perhaps this would lead one to place an unwise bet on their favorite team or lash out at a friend or partner only to come to regret it moments later. The affect heuristic is also responsible for one’s perception of the world being more in tune with their likes and dislikes than rationality and reasoning.
The substitution heuristic is where we answer a question that is easier than the one posed. An example here is that many political candidates become popular or in some cases even win elections largely because they “look the part.” Instead of going through all the qualifications the candidate may have, our System 1 thinking may simply ask if a person looks like he or she would make a good leader.
The availability heuristic is described as “the ease with which instances come to mind.” It makes us more likely to associate situations that are familiar to us with the likelihood of them happening even if this is not so. The example I think of from my own life experiences is that many people fear flying while almost no one fears driving. Plane crashes, based on overall safety as well as frequency of use to travel, are much less likely to affect an individual than a car crash.
The availability heuristic can easily be seen playing out in the availability cascade. This is where a novel concept gains popularity rapidly within a community/group or in society making it seem more relevant or plausible than it is because it’s increased due to individuals conforming their beliefs to that of others for social acceptance. The media can perpetuate this sort of thing as it does with terrorism and similar phenomena. In reality, terrorism takes relatively few lives, yet we fear it disproportionately because of its news coverage and cultural relevance.
What You See is All There is. We may think that we can look at situations and problems with an open mind but really, when we are thinking, our brains only work with the information they have stored. We do not take into account information that is out there that we may not have access to. “An essential design feature of the associative machine is that it represents only activated ideas. Information that is not retrieved (even unconsciously) from memory might as well not even exist.”
The concept of utility is used to model worth or value, it is a measure of satisfaction.
This was a difficult concept for me to fully wrap my head around at first but with good examples, it was made easier-
In economics: the rational consumer will not spend money on an additional unit of good or service unless its marginal utility is at least equal to or greater than that of a unit of another good or service. Therefore, the price of a good or service is related to its marginal utility and the consumer will rank his or preferences accordingly.
Example from the book: “If you prefer an apple to a banana, then you also prefer a 10% chance to win an apple to a 10% chance to win a banana. The apple and the banana stand for any objects of choice (including gambles), and the 10% chance stands for any probability.” Apples have more utility to you than bananas.
My favorite example: the comparison to winning $500 if you are a poor person with only $500 in the bank at the time or winning $500 if you are a rich person with $1 million in the bank. The $500 will have much more utility to the poor person.
Decision utility is manifested in choices to pursue or consume an outcome (decide). It is referred to in the book as “wantability.”
People are more likely to retain an object they own than acquire that same object when they do not own it and this shows up in selling/buying prices. For example, a wine connoisseur may not wish to sell a coveted bottle of wine that was purchased for $35 even if offered $100 for that bottle.
Experienced utility is much more complex. It encompasses how you feel about your experience based on your memory. This is tricky for two reasons-
The peak-end rule says that we evaluate experiences, positive or negative, by the feeling or experience at the most intense moment (peak) and the end, rather than on average.
Duration neglect says that the intensity and validity of a feeling or experience matters and not the amount of time one has in it.
Experiencing Self vs. Remembering Self
Our “Two Selves” as described in the book both measure our wellbeing respectively and do not have the same interests. The feeling you have during an experience can be much different than the memory of that experience and how it makes you feel.
The Cold-Hand Experiment
This experiment speaks to the last three sub-headings. In summary, subjects are exposed to holding their hands in cold water for an undisclosed period of time. Once is 60 seconds at 14 degrees Celsius and the next is 60 seconds at 14 degrees Celsius followed by 30 seconds at 15 degrees Celsius. When subjects were asked to rank which experience was worse, they rated the first as worse than the second even though it was 30 seconds less in time! This shows the peak-end rule and the remembering self which I’ve just discussed in action.
“Nothing in life is as important as you think while you are thinking about it.” This creates a bias in favor of goods and experiences that are initially exciting, even if they will eventually lose their appeal. The example that jumps to mind here is how one may lust over a new home, car, other material good expecting it to bring more pleasure and happiness overall than it does. I remember reading in the book a statement about how when we get a brand new shiny car we are very excited about it initially but in the long term it just turns into the thing that gets us where we’re going and in reality, we are not thinking too much about the car we are driving in while we are driving as the action itself takes so much of our focus. This example also speaks to affective forecasting (another concept mentioned in the book) which is predicting our emotions in the future by our present state, especially with happiness we are very poor judges of this as we tend to think that happiness will persist more than it does.
- Condition your System 1.
- In his biography “Total Recall” Arnold Schwarzenegger offers 10 life principles at the end, the 2nd is: “Don’t overthink. The more knowledge you develop the more you can rely on your instincts. Over analyzing cripples you. “The lesson here is to take in as much quality information as you can to best condition your intuition which will inevitably be used so frequently in life.
- Less is more.
- Make choices and go with them. Adding too much fluff overcomplicates things and usually does not lead to better outcomes. In your fitness routine, for example, have a few exercise techniques or strategies that work for you that help you be consistent and sustain.
- We do what’s easiest, so make the right decisions easy.
- I do my best to condition my life in a way that allows me to make good choices easily. I buy mostly only healthy food and prepare it ahead of time so that I’m less prone to eat unhealthy food. I leave books right by my bed so that when I’m in bed I’m inclined to read.
- The last example I will share was one of the most fascinating to me. I will quote it straight from the book- “An article published in 2003 noted that the rate of organ donation was close to 100% in Austria but only 12% in Germany, 86% in Sweden but only 4% in Denmark. These enormous differences are a framing effect, which is caused by the format of the critical question. The high-donation countries have an opt-out form, where individuals who wish not to donate must check an appropriate box. Unless they take this simple action, they are considered willing donors. The low-contribution countries have an opt-in form: you must check a box to become a donor. That is all. The best single predictor of whether or not people will donate their organs is the designation of the default option that will be adopted without having to check a box.”