Thinking Fast And Slow by Daniel Kahneman – Book Summary

In his book, Thinking Fast And Slow, Kahneman talks about human psychology, particularly the way we think and make decisions. He discusses two ways of thinking, one which is fast and intuitive, and the other which is slow and rigorous. He argues that the quick method is not always accurate, and it is sometimes better to slow down and use a thorough process of thinking to make better decisions. The book not only explains how we think but also gives us a primer on how to think better.

The book is aimed towards more serious readers, who are looking for a rigorous read. While no previous knowledge is necessary to read and comprehend the text, readers have to apply effort to follow the narrative.

This book is great for all those who want to know more about human psychology and the thinking process. And to understand how the human mind works in thinking fast and slow.

 

1- The Two Sets Of Thinking System In Our Mind

The two systems of our brain process information in different ways to arrive at different outcomes. The first system is intuitive. This system is an evolutionary legacy of the past, wherein quick responses often conferred survival advantages. The intuition which we are so often proud of is a trait of this system of decision making. The instinctive or intuitive reactions are somewhat automatic. Ducking to a ball thrown at your face is one such example of system one. Intuitive and natural responses are reactionary and quick.

The second system is that of deliberate and conscious decision-making. While deciding which career to choose, one will go over the options carefully, and weigh the pros and cons before making a choice. It is this kind of system which resonates with our sense of self and conscious individual decision-making.

Thus, we are blessed with both ways i.e. thinking fast and slow.

Due to this dichotomy, however, we are prone to making errors in judgment.

 

2- Out Of Thinking Fast And Slow, Which Path Our Mind Follows To Get To Results?

Our intuitive thinking is the mind’s way of using the least energy to solve a problem or direct an appropriate response. The natural system is such that whenever system one is inept at explaining or handling a particular situation, the more purposeful system two springs into action.

However, this call to action is sometimes missed by our mind being fooled into assessing a position in a different manner than it really is. That’s why our brain develops the two modes of thinking i.e. fast and slow.

Kahneman discusses a famous bat and ball problem, to showcase the errors in our approach. Imagine you have a baseball and a bat. Both cost 1.1 dollars in total, and the bat costs one dollar more than the ball. How much does the ball cost? If you took less than a second to answer that question, the chances are that you think that the ball cost 0.1 dollars!

It is obvious from the above example that sometimes our brains are fooled into adopting a system one approach towards solving a problem when ideally system two should have been called. The real answer, in this case, is 0.05 dollars, which is evident if you think about it for a bit and do some mental mathematics.

The problem presented above exposes our mind’s tendency to adopt the least effort route to solve a problem, resulting in misjudgments sometimes.

 

3- We Are Not Conscious Agent Of Our Thoughts And Decisions

Priming is a phenomenon that is utilized as a technique in psychology, wherein an external stimulus influences an organism’s response to a subsequent stimulus unconsciously.

Research shows that people recognize certain words far quicker if they are primed with a semantically similar word previously. For example, your brain will register the word Nurse much faster, when it follows the word Doctor (semantically related) than it would if it follows the word Day (semantically unrelated).

The process of priming works at an unconscious level, and only sophisticated tests can show its evidence. Priming is not just verbal; it can also be visual. As such we are being primed with all sorts of visual and verbal cues left to right and center all day, during our interaction with the world.

It is a powerful phenomenon that can even affect our actions and decisions. In a research, it was shown that a set of people who were primed with words related to the elderly, walked out of the tests much more slowly than those who were not primed with such words! So much for the belief that we are always in control of our behavior and responses.

 

4- Role Of Forecasting In Making Faster Decisions

Forecasting helps our minds to make snap judgments. Situations that are an ideal case for heuristic judgments are those which need to be solved quickly to achieve immediate goals. The approach is not designed to be optimal, but fast. However, when presented with certain situations, sometimes our mind tends to over-rely on these systems. We tend to jump ahead of the facts. Here is where System two can play an essential role by causing us to doubt our own conclusions.

Often when faced with a message, we are more likely to focus on the content of the message than to doubt its relevance. This is because System one focuses on the content, while System two sows the seeds of doubt. Since employing System two takes effort, we are more likely to just believe in the data than to doubt it. We also tend to answer questions that seem easier than the ones which have really been asked. This is often the case when the problem presented is a challenging one. Our mind with the overarching goal of solving it substitutes the actual problem with an illusory one to provide an answer! This is evident in the case of stereotypes. In a one-to-one conversation with a stranger, you may judge his or her intelligence, not on objective calculation (which is complex), but on the racial stereotype, you have in your own mind (easy substitution).

Then there is the availability bias, wherein our expectation of an event (such as a natural disaster) is biased because one may have heard a lot about it, or it may have happened in the recent past. For instance, immediately after a hurricane or an earthquake, people seem to take more preparation for such events, e.g., buying property insurance. Though they are more likely to die in a road accident, their assessment of the threat that hurricanes pose to them would be far graver. As time passes by, the level of preparedness decreases. Also, a person’s estimate of any disaster is influenced by the worst recorded instance, and most people do not expect an even worse thing to happen.

Therefore, ‘thinking fast and slow’ affects the manner we forecast any situation.

 

5- Our Inability To Understand Statistics Affects Thinking Fast And Slow

As we have previously seen, our interpretation of data can often be biased. When given a particular population consisting of different types of people and asked to estimate the probability of any random person being of a particular type, we are likely to base our estimate on the proportion of each type in the whole population. The proportion of a particular class in a population is called the base rate of that class. However, how much an instance conforms to the stereotype of a particular class is called the representativeness of that instance.

Often in our estimates, we ignore the base rate and are guided by the representativeness factor. This results in inaccurate estimates because rather than being guided by data we are guided by our stereotypes. A tool to integrate base rate and representativeness is to use Bayes’ formula, developed by Reverend Thomas Bayes.

Base rates are of two types, statistical and causal. Statistical base rates are facts about a population to which a case belongs, but they are not relevant to the individual case. Causal base rates, on the other hand, change our view of how the individual case came to be. Although from a mathematical point of view there is no difference between them, we are more likely to ignore statistical base rate and give importance to the causal base rate. This is an instance of bias.

Another interesting statistical phenomenon is called Regression to the mean. This can be seen while measuring the performance of a person (or any team or group) in any field. Usually, a better than average performance is followed by a worse performance, whereas a worse than average performance is followed by a better one. This is because a better or worse than average performance is caused by a stroke of good or bad luck, whereas the average determines the talent.

 

6- Our Memory Influences Our Behavior And Decisions

The utility can be of two kinds, “experienced utility” and “decision utility”. While experienced utility refers to the utility derived from hedonic experiences, decision utility can be seen as wanting to enjoy something. If people were fully rational, then these two utilities will be the same, as people will make decisions to derive the utility they wanted. However, there are discrepancies between the two.

Firstly, let us see the two different theories of experiencing pain and pleasure. While one theory suggests that the amount of pain and pleasure is influenced by the peak value, the second theory suggests that it is influenced by the amount of pain (or pleasure) at the end of the experience. Thus, the only important factors are peak value and closing value (this is called the peak-end rule), the duration of the experience is neglected.

In fact, our decisions are influenced not by how we experience pleasure or pain but by how our mind remembers them. What we learn from the past is to maximize the qualities of our future memories, not necessarily our future experiences.

Peak-end rule and duration neglect can be observed very well in stories. Mostly, the focus in stories is usually on the critical events as well as the ending. The length of the story hardly matters. Consider, for example, going on a vacation. Usually, it is the most memorable moment that stays on with us. That is why most vacation photographs are of important events, to help us recreate a story of that vacation later.

 

7- Our Understanding Faces Illusions By A Narrative With Convincing & Consistent Context

Often a good and well-constructed story might appear to us as true, even though it is not. This is known as the narrative fallacy. In fact, a compelling narrative may even foster the notion of inevitability, highlighting the role of skill and conscious choices and diminishing the role of luck. It makes us assess the quality of a decision not by whether the process was sound but by whether its outcome was good or bad. Thus, if we see the story of any successful firm and the choices they made, it would appear as if every time the same choices were made, it would have resulted in success, even though this is not true, and an element of luck is always involved.

There is another illusion, the illusion of validity. Our System One loves to jump to conclusions, even though the facts and evidence might point to otherwise. All it takes is for a story to be coherent and be told in a confident tone. For example, we tend to attribute individual differences in achievement to differences in skill. This is a long-held belief among us. However, it is not based on much evidence. In fact, luck has as much a role to play in success as skill and talent if not more. Facts that do challenge basic assumptions, and thereby threaten our livelihood and self-esteem, are simply not absorbed by our minds.

 

8- Inability Of Making Rational Decisions Even When People Think They Can

Most economists assume that the average economic agent (i.e., a consumer or a producer) is a rational being with selfish intent and consistent thoughts. However, psychologists have proved that this is not actually true; people are neither entirely rational nor completely selfish, and that their tastes are not entirely stable.

It was previously held that the actions and decisions of people are governed by what is called the Utility Theory. Think rationally and choose the path which results in the best result for you. However, the utility theory takes a beating in many situations from the Prospect Theory.

Imagine a couple of scenarios:

Scenario 1: You are given one thousand dollars and are asked to then choose between getting a certain shot bonus of five hundred dollars, or gambling with a fifty percent chance of winning another thousand dollars.

Scenario 2: You are given two thousand dollars and are then asked to choose between a guaranteed loss of five hundred dollars and gambling with a fifty percent chance of losing one thousand dollars.

If we make a rational choice, our choice in both scenarios will be the same. However, research shows that in the first scenario, people choose the guaranteed pay-out, while in the second, they make a gamble!

The truth is that we are afraid of losses more than we like to win. The perceived losses are benchmarked to reference points which can be different for different people. The starting position in the two scenarios with a different quantum of money, makes the reference points different for both scenarios.

 

Conclusion Of Thinking Fast And Slow

If we make a rational choice, our choice in both scenarios will be the same. However, research shows that in the first scenario, people choose the guaranteed pay-out, while in the second, they make a gamble!

The truth is that we are afraid of losses more than we like to win. The perceived losses are benchmarked to reference points which can be different for different people. The starting position in the two scenarios with a different quantum of money, makes the reference points different for both scenarios.

Our minds can be seen as consisting of two separate but related systems of thinking, system one and two. In other words, thinking fast and slow, while the former is fast, automatic but quite inaccurate, the latter is slow, voluntary but accurate. Often, the workings of system one, create biases and illusions in our mind, since we tend to jump to conclusions instead of carefully analyzing all facts. This is why, if we are to quickly form theories after being presented with facts, the theories are most likely to be skewed and biased.

The two separate systems also affect how we experience feelings such as pleasure and pain. We are generally risk-averse since the pain of losing is more than the pleasure of gaining. This cannot be explained rationally, but rather is a working of our feelings or emotions. Also, the pain or pleasure which we remember out of an experience is most likely to be influenced by the peak and ending values of the pain (or pleasure).