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.
Amos Twersky s"l