Thinking, Fast and Slow

Two Brains Running by David Plunkert

Thinking, Fast and Slow is a 2011 book by Nobel Memorial Prize winner in Economics Daniel Kahneman which summarizes research that he conducted over decades, often in collaboration with cognitive scientist Amos Tversky. It covers all three phases of his career: his early days working on cognitive biases (unknowingly using poor judgement), prospect theory (the tendency to base decisions on the potential value of losses and gains rather than the final outcome), and his later work on happiness (e.g. positive psychology).

The book’s central thesis is a dichotomy between two modes of thought: System 1 is fast, instinctive and emotional; System 2 is slower, more deliberative, and more logical. The book delineates cognitive biases associated with each type of thinking, starting with Kahneman’s own research on loss aversion (the tendency to favor avoiding losses over acquiring gains). From framing choices (the tendency to avoid risk when a positive context is presented and seek risks when a negative one is) to attribute substitution (using an educated guess to fill in missing information), the book highlights several decades of academic research to suggest that people place too much confidence in human judgment.

The basis for his Nobel prize, Kahneman developed prospect theory to account for experimental errors he noticed in Daniel Bernoulli’s traditional utility theory (which examined the satisfaction associated with consuming goods and services). This theory makes logical assumptions that do not reflect people’s actual choices because it doesn’t take into account behavioral biases. For example, one might reasonably assume that an individual would place twice as much value on a 20% chance of winning a prize as opposed to a 10% chance, but experiments show otherwise. Humans are more likely to act to avoid loss than to achieve a gain.

Kahneman describes the two different ways the brain forms thoughts: System 1 (fast, automatic, frequent, emotional, stereotypic, subconscious), and System 2 (slow, effortful, infrequent, logical, calculating, conscious). He covers a number of experiments which purport to highlight the differences between these two thought processes, and how they arrive at different results even given the same inputs. Terms and concepts include coherence, attention, laziness, association, jumping to conclusions, and how one forms judgements.

Humans struggle to think statistically. Kahneman documents a variety of situations in which individuals either arrive at binary (yes/no) decisions or fail to precisely associate reasonable probabilities to outcomes. Kahneman explains this phenomenon using the theory of heuristics (mental shortcuts or rules of thumb). System 1 thinking involves associating new information with existing patterns, or thoughts, rather than creating new patterns for each new experience. For example, a child who has only seen shapes with straight edges would experience an octagon rather than a triangle when first viewing a circle. In a legal metaphor, a judge limited to heuristic thinking would only be able to think of similar historical cases when presented with a new dispute, rather than seeing the unique aspects of that case. In addition to offering an explanation for the statistical problem, the theory also offers an explanation for human biases.

The ‘anchoring effect’ is our tendency to be influenced by irrelevant numbers. Shown higher/lower numbers, experimental subjects gave higher/lower responses. In one experiment, experienced German judges proposed longer sentences if they had just rolled a pair of dice loaded to give a high number. The ‘availability heuristic’ occurs when people make judgments about the probability of events by how easy it is to think of examples. The availability heuristic operates on the notion that, ‘if you can think of it, it must be important.’ The availability of consequences associated with an action is positively related to perceptions of the magnitude of the consequences of that action. In other words, the easier it is to recall the consequences of something, the greater we perceive these consequences to be. Sometimes, this heuristic is beneficial, but the frequencies that events come to mind are usually not accurate reflections of their actual probability in real life.

System 1 is prone to substituting a simple question for a more difficult one. In what Kahneman calls their ‘best-known and most controversial’ experiment, ‘the Linda problem.’ Subjects were told about an imaginary Linda, young, single, outspoken and very bright, who, as a student, was deeply concerned with discrimination and social justice. They asked whether it was more probable that Linda is a bank teller or that she is a bank teller and an active feminist. The overwhelming response was that ‘feminist bank teller’ was more likely than ‘bank teller,’ violating the laws of probability. (Every feminist bank teller is a bank teller.) In this case System 1 substituted the easier question, ‘Is Linda a feminist?’ dropping the occupation qualifier. An alternative view is that the subjects added an unstated implicature to the effect that the other answer implied that Linda was not a feminist.

Kahneman writes of a ‘pervasive optimistic bias,’ which ‘may well be the most significant of the cognitive biases.’ This bias generates the illusion of control, that we have substantial control of our lives. This bias may be usefully adaptive. Optimists are more psychologically resilient, have stronger immune systems, and live longer on average than more reality-based opposites. Optimism protects from loss aversion: people’s tendency to fear losses more than we value gains. A natural experiment reveals the prevalence of one kind of unwarranted optimism. The ‘planning fallacy’ is the tendency to overestimate benefits and underestimate costs, impelling people to take on risky projects. In 2002, American kitchen remodeling was expected on average to cost $18,658, but actually cost $38,769.

To explain overconfidence, Kahneman introduces the concept he labels ‘What You See Is All There Is’ (WYSIATI). This theory states that when the mind makes decisions, it deals primarily with Known Knowns, phenomena it has already observed. It rarely considers Known Unknowns, phenomena that it knows to be relevant but about which it has no information. Finally it appears oblivious to the possibility of Unknown Unknowns, unknown phenomena of unknown relevance. He explains that humans fail to take into account complexity and that their understanding of the world consists of a small and not necessarily representative set of observations. Furthermore, the mind generally does not account for the role of chance and therefore falsely assumes that a future event will mirror a past event.

‘Framing’ is the context in which choices are presented. In one experiment, subjects were asked whether they would opt for surgery if the ‘survival’ rate is 90 percent, while others were told that the mortality rate is 10 percent. The first framing increased acceptance, even though the situation was no different. ‘Sunk costs’ refers to the fact that rather than consider the odds that an incremental investment would produce a positive return, people tend to ‘throw good money after bad’ and continue investing in projects with poor prospects that have already consumed significant resources. In part this is to avoid feelings of regret.

In describing Prospect Theory he points to the tendency for problems to be addressed in isolation and how, when other reference points are considered, the choice of that reference point (called a frame) has a disproportionate impact on the outcome. Evolution teaches that traits persist and develop because they increase fitness. One possible hypothesis is that our conceptual biases are adaptive, as are our rational faculties. Kahneman offers happiness as one quality that our thinking process nurtures. He first took up this question in the 1990s. At the time most happiness research relied on polls about life satisfaction.

Kahneman proposed an alternate measure that assessed pleasure or pain sampled from moment to moment, and then summed over time. Kahneman called this ‘experienced’ well-being and attached it to a separate ‘self.’ He distinguished this from the ‘remembered’ well-being that the polls had attempted to measure. He found that these two measures of happiness diverged. His major discovery was that the remembering self does not care about the duration of a pleasant or unpleasant experience. Rather, it retrospectively rates an experience by the peak (or valley) of the experience, and by the way it ends. Further, the remembering self dominated the patient’s ultimate conclusion.

Kahneman demonstrated the principle using two groups of patients undergoing painful colonoscopies. Group A got the normal procedure. Group B, unknowingly received a few extra minutes of less painful discomfort after the end of the examination, i.e., more total discomfort. However, since Group B’s procedure ended less painfully, the patients in this group retrospectively minded the whole affair less. ‘Odd as it may seem,’ Kahneman writes, ‘I am my remembering self, and the experiencing self, who does my living, is like a stranger to me.’

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