In
an outstanding and highly influential book written for an audience uninitiated in the dark arts of Psychology and the dismal (social) science of Economics, Daniel
Kahnemann the godfather of behavioural economics shares his insights from the decades of his research into the human
mind.
Psychologists
by training and profession, Daniel Kahnemann and his friend and
colleague, the late Amos Twersky, have made an important contribution
to the field of Economics for which Kahnemann received the Nobel
Prize in Economics in 2002. As the prize is not awarded posthumously,
Amos Twersky who died in 1995 did not receive it.
Kahnemann
gives an overview of the research on professional career, so the
reader gets an insight into a lifetime's research into the human mind
in action: solving problems, making decisions, experiencing pleasure
and pain and remembering these experiences.
Kahnemann
and Twersky focused their sharp minds on what human beings get wrong.
And indeed they discover, name and classify the most common mistakes
our minds are designed to make over and over again, this being
downside of the mind being extremely well adapted to some other
functions. Most notably human lack a good intuitive sense for the
laws of statistics. I for one was happy for having additional excuse
for being no good at Statistics. Additionally we love to combine a
very few facts that are available to our memory at any moment into
coherent pleasing stories. Unfortunately very coherent and pleasing
stories intuitively built on such foundations cannot only be produced
by us most prolifically and quickly they mostly turn out to be false.
I found this finding initially very disappointing and later on as
Kahnemann produces his compelling arguments and illustrations quite
annoying. Surprisingly for a factual book, My emotions became quite
heavily engaged as Kahnemann illustrates how good I am at fooling
myself and how difficult it is to stop doing this even once I know
the ways in which my mind is vulnerable to misconceptions about the
world out there. I guess what annoyed me was the realisation that I
am just as prone to all these mistakes as the average participants in
his experiment. In fact confidence in your abilities and experience
can be truly turbo-charge ones propensity to get things wrong and
persist in ones erroneous ways!
Kahnemann's
book is very accessible when he explains what happens when people try
to solve problems or make decisions. There are two modes of thinking
the fast, intuitive mode and the slow effortful deliberative mode. It
is the fast intuitive mode that is constantly active, eager to jump
to conclusions and develop plausible, entertaining and satisfying
explanations and stories out of very few facts. The slow thinking
effortful ode of thinking comes into action when it s clear that
effort is required or when we sense that the conclusions of the fast
mode of thinking need to be checked.
The
result of all this is that human beings are prone to make mistakes
when trying to solve problems that feel very easy, but are slightly
trickier than they look, We are also prone to take decisions in a way
that is inconsistent with what we actually want. What Kahnemann
explains is that our errors and less than rational decision making is
not totally random and wild, but actually quite systemic and
predictable. They have names such as availability heuristic,
anchoring and base rate fallacy. As a result his more fallible Human
is able to replace the rational Econ, which is the simplified model
of the decision maker.
For
fans of the crew of the Starship Enterprise, before Kahnemann,
Economics is based on the model of a person behaving like the
character “Data” highly rational and intelligent, not subject to
emotion, after Kahnemann, Economics can work with a model of a human
being that is more like Captain Picard, just as intelligent but
subject to emotions and inconsistencies in his choices. Many
economists see this as great and valuable progress, others think that
incorporating an emotional systematically inconsistent rather than a
coldly rational person as the base model for their research may cost
more than the benefits it brings. But right now Behavioural Economics
is “hot” in Economics, business and policy making. With
influential books such as “Nudge” by Thaler and Sunstein and
“Predictably Irrational” by Dan Ariely making it to the top of
the best-seller lists.
Kahnemann's
presentation is very effective as he let's the reader participate in
his experiments. Thus we learn from our own actions how easily we
mislead ourselves when an expert in human behaviour “pushes the
right buttons”. For example: A bat and a ball together cost
GBP1.10. The bat cost GBP 1 more than the ball. How much does the
ball cost?
Unfortunately,
even once we have been made aware of the mistakes we are prone to
make we are likely to repeat them when confronted with similar
problem. Knowledge does however help us to recognize these mistakes
more easily when others make them. Depending on our temperament, we
can then enjoy catching them out, or help them recognize the error.
Kahnemann's
agenda in presenting the book is to let the concepts that are crucial
to his theories and discoveries flow into the daily office gossip as
the water cooler and the coffee machine when we comment on the
behaviour of others. He ends each chapter of his book with some
helpful suggestions in this regard.
Thinking
Fast and Slow covers a lot of ground. It gives us some insight not
only into Kahnemann and Twersky's findings, but also their method of
working:daily long walks where they discussed their ideas and
hypotheses. It also tells us how some research can emanate from a
family argument about moving to California or a visit to the Opera
House to see La Traviata.
Most
recently Kahnemann has been involved in research about what factors
promote well being (he prefers this term to “Happiness”). Here
again he shares very valuable insights, for instance, the difference
between the experiencing pleasure and pain when an event happens and
when we remember it.
Kahnemann's
book is a great read with many insights. At times, particularly when
an understanding of probability theory and statistics comes into it,
it can be quite difficult, requiring a lot of effortful thinking,
which can lead to quite a bit of “ego depletion” a state in which
you find it difficult to pay attention and inappropriately give free
reign to a more lazy fast thinking mode. As this state is connected
with a decrease in glucose level, it can be improved by munching on a
piece of high quality chocolate. That way even the more difficult
passages of this book can bring happiness to the reader.
Daniel Kahnemann
Amos Twersky s"l
