a biased review of Thinking, Fast and Slow by Daniel Kahneman
The pair wanted to understand why human behavior so often defies economic logic:
- We change the question to simplify things. Imagine Linda; young, single, outspoken, very bright. As a student, she was deeply concerned with discrimination and social justice. OK. Asked if it was more probable Linda was a bank teller or a feminist bank teller, most said feminist bank teller was likelier.
This violates the laws of probability: feminist bank tellers all belong to the probably bigger group called bank tellers.
- We neglect denominators. “A disease that kills 1,286 people out of every 10,000” is judged more dangerous than a disease that “kills 24.4 out of 100 people,” just because 1,286 (the sample chosen) is bigger. (BTW 1,286 is only 12.86% of 10,000… meaning it’s less dangerous).
- We get used to a number and base all our numbers on it. The initial price offered for a car sets the standard for the negotiations; lower prices than that seem more reasonable even though they could still be more than the car is worth.
- We act to prevent loss quicker than we act to gain.
People hold losing stocks and sell winners, even though winners are more likely to keep making money; losers to keep losing it.
- We care more about what we remember than what we experience. Two tested groups agreed to endure an irritating stimulus; one endured it longer time, but with a slight decrease just before the end; the second had a shorter time but the same level of irritation throughout. The group with the longer time said it was more bearable, because the irritation decreased, even though they actually endured the full irritation longer.
The way we actually behave:
- Fits into a new replacement to the Bernoulli Expected Utility Hypothesis used by many economists. It attempted to explain behavior in terms of rational action to get value; with it, economists tried to predict behavior, but were often stymied.
Kahneman and Tversky’s proposed (and Nobel-winning) replacement, Prospect Theory, is a model for how decisions need to adapt more towards avoiding loss than appreciating gain.
- Uses the fast-deciding part of our minds (system 1); meanwhile a somewhat lazy but more meticulous reviewer (system 2) evaluates and edits the fast decision-making process.
- Gets us two selves – an experiencing self responding to stuff, and a remembering self that holds on and ultimately owns our interpretation of the stuff.
So the you that posts your life to Facebook and takes selfies in the bathroom mirror, at Lady Gaga concerts, at the Met, what have you, is your remembering self.
If you’re as much a logic lover as I am, this book will bend your mind. You find yourself no longer judging human behavior as “illogical.” There’s another logic model at work.
Walking through Manhattan on the first “warm” (40 degree!) day last week, I had a long experience of joy. I thought to put my remembering self aside because the experience is more important. I knew the day seemed warm because I had been anchored to expect a cold winter day. I also knew I’d write about the experience in this review… so my remembering self wins, after all.