Thinking Fast and Slow: An Introduction from the Book on Behavioral Economics (2011) by Daniel Kahneman-Noble Laureate.

Introduction

The hope for informed gossip is that there are distinctive patterns in the errors people make. Systematic errors are known as biases, and they recur predictably in particular circumstances. When the handsome and confident speaker bounds onto the stage, for example, you can anticipate that the audience will judge his comments more favourably than he deserves. The availability of a diagonistic label for this bias-the halo effect-makes it easier to anticipate, recognize, and understand.

Most impressions and thoughts arise in your conscious experience without your knowing how they got there. The mental work that produces impressions, intuitions, and many decisions goes on in silence in our mind.

Much of the discussion in this book is about biases of intuition. As we navigate our lives, we normally allow ourselves to be guided by impressions and feelings, and the confidence we have in our intuitive beliefs and preferences is usually justified. But not always. We are often confident even when we are wrong, and an objective observer is more likely to detect our errors than we are.

So this is the authors aim: improve the ability to identify and understand errors of judgement and choice, in others and eventually in ourselves, by providing a richer and more precise language to discuss them. In at least some cases, an accurate diagnosis may suggest an intervention to limit the damage that bad judgements and choices often cause.

Origins

This book presents the authors current understanding of judgement and decision making, which has been shaped by psychological discoveries of recent decades. However, he traces the central ideas to the lucky day in 1969 when he asked a colleague, Amos Tversky to speak as a guest to a seminar. His colleague talked about-Are people good intuitive statisticians? He reported that the answer was a qualified yes. They had a lively debate in the seminar and ultimately concluded that a qualified no was a better answer.

Amos and he enjoyed the exchange and concluded that intuitive statistics was an interesting topic and would be fun to explore it together.

They found that expert colleagues also, like them, greatly exaggerated the likelihood that the original result of an experiment would be successfully replicated even with a small sample. They also gave very poor advice to a fictitious graduate student about the number of observations she needed to collect. Even statisticians were not good intuitive statisticians.

A theory was emerging in their mind about the role of  resemblance in predictions, they tested the theory for example by taking an illustration of a person with characteristics that resembled a stereotypical li9brarian, and found that most people thought of him as that, they ignored other statistics, such as, there are more farmers in US and used resemblance as a simplifying heuristic to make a difficult judgement, this caused predictable biases in their predictions.

People judged the size of catewgoriesby the ease with which instances came to their mind-the availability characteristic

Social scientists of the 70s assumed people are rational and they depart from rationality due to emotions, Amos and Daniel documented systematic errors in the thinking of normal people and traced these errors to the design of machinery of cognition rather than corruption caused by emotion.

The full text of questions asked to respondents was included by the authors in their articles, serving  as demonstrations of cognitive biases to the rewaders.

Then they shifted to decision making under uncertainty:Prospect Theory.

Where we are now:

Our everyday intuitive abilities are no less marvelous than the striking insights of an experienced fire fighter or physician-only more common.According to the great Herbert Simon: “Intuition is nothing more or less than recognition”

The essence of intuitive heuristics is that when we are faced with a difficult question, we often answer an easier one instead, usually without noticing the substitution.

Spontaneous search often fails, leading to more deliberate thinking.

The author describes mental life by the metaphor of two agents, System1 and 2, fast and slow thinking.

What comes next in the book:

Part 1:Two systems approach to judgement and choice. Automatic operations of System 1 of thinking and controlled operations of System 2.

Part 2 explains that Statistics requires thinking of many things at once which System 1 is not designed to do.

Part 3 describes how overconfidence is fed by the illusory certainty of hindsight.

Part 4 describes the the unfortunate tendency to treat problems in isolation and with framing effects.

Part 5 describes two selves, experiencing self and remembering self, and how we can exploit memories, so a more painful experience leaves a better memory from among two painful experiences.

A concluding chapter explores implications of three distinctions, experiencing and remembering self, agents in classical and behavioral economics and automatic System1 and effortful system 2.