Thinking Fast and Slow is a detailed overview of the latest thinking on human judgement and decision making from Nobel Prize winning behavioural economist Daniel Kahneman. Distinguishing between rational thought (thinking slow) and instinctive thought (thinking fast) Kahneman looks at cognitive biases, anchoring, risk, framing, priming, prospect theory, reversion to mean and the law of small numbers to identify psychological loopholes in human thinking.
The Second Machine Age by Erik Brynjolfsen, Andrew McAfee
Thinking Fast and Slow is a scientific summary of human thought and judgement.
This book is literally packed with insight. Kahneman shows, with the help of behavioural economics, how a few simple tricks can adjust our thinking fundamentally.
Kahneman’s two system model is easy enough for anyone to understand and his use of case studies is helpful to illustrate all the core concepts.
For economics students, this should be required reading. It’s also a great book for copywriters, marketing people and entreprenuers.
Below are some of the key insights I took from this book:
- The human mind is both System 1 instinctive (fast) and System 2 rational (slow).
- System 1 is instinct and impression led, subject to illusion and snap judgement.
- System 2 is attention and effort led, responsible for control/rational thinking.
- The mind is an associative mind. We think in emotive imagery. (Priming)
- The mind has a preference for cognitive ease (Simplicity)
- System 1 is subject to WYSIATI, chasing facts towards a preferred conclusion.
- The law of small numbers says we jump to conclude before statistically valid.
- Anchors are proven to adjust our parameters for decision making
- The availability heuristic explains fear of terrorism vs. car crashes.
- Statistical reasoning doesn’t persuade as effectively as appeals to System 1 associations and heuristics. (Linda Paradox)
- Correlation does not equal causation. (Regression to the mean)
- The mind has a preference for false validity/undertstanding.
- We should be sceptical of expert opinion leading to groupthink.
- The planning fallacy assumes a best case scenario. (Black Swan)
- But optimism, overconfidence and ignoring risk fuels enterprise.
- Prospect theory, the endowment effect and loss aversion model the irrationality of human decision making based on System 1 instinctiveness.
- Rare events are made System 1 vivid by effective imagery, analogy and denomination (e.g. 1 in 1000 people die)
- System 1 emotion governs repeat decision making leading to gamblers ruin, the hot hand fallacy and many other cognitive biases.
- A system of experienced wellbeing (subject to perception) is more effective then the basic utility maximising economic model (e.g. Marriage vs. life satisfication)
- More work is needed to fully understand the neurology between System 1 and System 2 thinking.