1-Sentence-Summary: Thinking Fast And Slow shows you how two systems in your brain are constantly fighting over control of your behavior and actions, and teaches you the many ways in which this leads to errors in memory, judgement and decisions, and what you can do about it.
Say what you will, they don’t hand out the Nobel prize for economics like it’s a slice of pizza. Ergo, when Daniel Kahneman does something, it’s worth paying attention to.
His 2011 book, Thinking Fast And Slow, deals with the two systems in our brain, whose fighting over who’s in charge makes us prone to errors and false decisions.
It shows you where you can and can’t trust your gut feeling and how to act more mindfully and make better decisions.
Here are 3 good lessons to know what’s going on up there:
Your behavior is determined by 2 systems in your mind – one conscious and the other automatic.
Your brain is lazy and thus keeps you from using the full power of your intelligence.
When you’re making decisions about money, leave your emotions at home.
Want to school your brain? Let’s take a field trip through the mind!
Lesson 1: Your behavior is determined by 2 systems in your mind – one conscious and the other automatic.
Kahneman labels the 2 systems in your mind as follows.
System 1 is automatic and impulsive.
It’s the system you use when someone sketchy enters the train and you instinctively turn towards the door and what makes you eat the entire bag of chips in front of the TV when you just wanted to have a small bowl.
System 1 is a remnant from our past, and it’s crucial to our survival. Not having to think before jumping away from a car when it honks at you is quite useful, don’t you think?
System 2 is very conscious, aware and considerate.
It helps you exert self-control and deliberately focus your attention. This system is at work when you’re meeting a friend and trying to spot them in a huge crowd of people, as it helps you recall how they look and filter out all these other people.
System 2 is one of the most ‘recent’ additions to our brain and only a few thousand years old. It’s what helps us succeed in today’s world, where our priorities have shifted from getting food and shelter to earning money, supporting a family and making many complex decisions.
However, these 2 systems don’t just perfectly alternate or work together. They often fight over who’s in charge and this conflict determines how you act and behave.
Lesson 2: Your brain is lazy and causes you to make intellectual errors.
Here’s an easy trick to show you how this conflict of 2 systems affects you, it’s called the bat and ball problem.
A baseball bat and a ball cost $1.10. The bat costs $1 more than the ball. How much does the ball cost?
I’ll give you a second.
…
Got it?
If your instant and initial answer is $0.10, I’m sorry to tell you that system 1 just tricked you.
Do the math again.
And?
Once you spent a minute or two actually thinking about it, you’ll see that the ball must cost $0.05. Then, if the bat costs $1 more, it comes out to $1.05, which, combined, gives you $1.10.
Fascinating, right? What happened here?
When system 1 faces a tough problem it can’t solve, it’ll call system 2 into action to work out the details.
But sometimes your brain perceives problems as simpler as they actually are. System 1 thinks it can handle it, even though it actually can’t, and you end up making a mistake.
Why does your brain do this? Just as with habits, it wants to save energy. The law of least effort states that your brain uses the minimum amount of energy for each task it can get away with.
So when it seems system 1 can handle things, it won’t activate system 2. In this case though, it leads you to not use all of your IQ points, even though you’d actually need to, so our brain limits our intelligence by being lazy.
Lesson 3: When you’re making decisions about money, leave your emotions at home.
Even though Milton Friedman’s research about economics built the foundation of today’s work in the field, eventually we came to grips with the fact that the homo oeconomicus, the man (or woman) who only acts based on rational thinking, first introduced by John Stuart Mill, doesn’t quite resemble us.
Imagine these 2 scenarios:
You’re given $1,000. Then you have the choice between receiving another, fixed $500, or taking a 50% gamble to win another $1,000.
You’re given $2,000. Then you have the choice between losing $500, fixed, or taking a gamble with a 50% chance of losing another $1,000.
Which choice would you make for each one?
If you’re like most people, you would rather take the safe $500 in scenario 1, but gamble in scenario 2. Yet the odds of ending up at $1,000, $1,500 or $2,000 are the exact same in both.
The reason has to do with loss aversion. We’re a lot more afraid to lose what we already have, as we are keen on getting more.
We also perceive value based on reference points. Starting at $2,000 makes you think you’re in a better starting position, which you want to protect.
Lastly, we get less sensitive about money (called diminishing sensitivity principle), the more we have. The loss of $500 when you have $2,000 seems smaller than the gain of $500 when you only have $1,000, so you’re more likely to take a chance.
Be aware of these things. Just knowing your emotions try to confuse you when it’s time to talk money will help you make better decisions. Try to consider statistics, probability and when the odds are in your favor, act accordingly.
Don’t let emotions get in the way where they have no business. After all, rule number 1 for any good poker player is “Leave your emotions at home.”
My personal take-aways
This is getting long, so I’ll keep it brief. Kahneman’s thinking reminds a bit of Nassim Nicholas Taleb and Antifragile. Very scientific, all backed up with math and facts, but yet simple to understand.
IN MORE DETAILS
Contents
What’s it about?
What’s it about?
- Two contrasting systems of thinkingdrive our mental activities
- Using both systems in conjunction makes for effective decision making
- Is your decision making and judgmentalways objective and practical?
- Outside influences impact yourdecisions without your knowledge
- The role of emotions in decisionmaking
- We must overcome our instinct tofollow the path of least resistance
- Only trust your intuition when youhave a basis for your belief
- Prospect theory demonstrates thatfear of loss motivates many of our decisions
- The presentation makes all thedifference
- The bird’s-eye view keeps us focusedon one aspect instead of building a complete picture
- Our experience plus our memories ofthe experience shape our perception of happiness
- Final summary
- Now read the book
In this book, author and Nobel Prize winner Daniel Kahneman explores the way in which our mind makes decisions and judgments. He describes the two contrasting processes that our mind follows when we think. The first process is the intuitive “fast” thinking process that happens almost unconsciously. The “slow” second process involves deductive reasoning, where the thinking happens deliberately and consciously. Throughout the book, the author reveals how our rational side is often not driving our thought processes, even though we may consider ourselves to be very rational and logical individuals. This is one of the reasons why our judgment is often way off track, or our decision making can be badly skewed in certain situations, despite the fact that at other times we may make perfectly good decisions or have great judgment in others.
It is our intuitive self that is actually in control most of the time, and this is why we are far more susceptible to influences than we like to believe. The author presents several heuristics that influence our intuitive process of thinking, and therefore our decisions and judgment, in significant ways. Armed with this awareness, we get an insight into how we can use both our rational and irrational thinking processes in conjunction to make better decisions and choices in life.
Two contrasting systems of thinking drive our mental activities
Our mental activities are driven by two very contrasting systems—the intuitive and the deliberate. The intuitive system is fast, producing almost instantaneous responses. In contrast, the second system—the rational one—is programmed to think, analyze, evaluate, reason, and then respond. Usually, we believe that our decision making is driven by the latter system of thought. The truth is that System 1, which is almost involuntary, lays the foundation for most of our decision making, even many of those decisions that we take using the System 2 processes of rational thought.
System 1 can be described as involuntary thought that automatically draws upon relevant knowledge and uses it to reach a conclusion. For example, when you see the following sum: 2 + 2 = ? written on a board, you cannot help thinking of the right answer. You have these involuntary responses innumerable times a day, and most of the time you are not even aware these are the result of your System 1 thought processes at work. There are some activities that run on autopilot thanks to System 1 (e.g., chewing and breathing), but these can be stopped or controlled if you choose.
System 2 thinking requires that you give uninterrupted attention to the task at hand. Typically, when you are doing something that is not an automatic reaction or not reflexive, System 2 comes into play. For example, you are searching for a friend in a huge crowd of people, or you are waiting to catch a particular phrase in a song.
Using both systems in conjunction makes for effective decision making
There are countless instances where both systems also work in conjunction—when you pay extra attention driving at night, for example, or when you consciously make an effort to remain polite even though your temper is frayed. In these examples, you are not aware that your mind is running System 1 and System 2. In fact, it is quite difficult for you to gauge whether System 1 or System 2 is at work when you are carrying out any mental activity.
Remember it this way: System 1 is on auto-respond mode all the time, while System 2 needs to be called into action with some effort. System 1 gives the signals (impressions, feelings, gut instinct) based on which System 2 formulates set ideas and beliefs. When System 1 finds itself unable to handle a problem, it drafts in System 2 to help.
Why is it important for you to know the difference? The answer is because System 1 is prone to jumping to conclusions and this can lead to mistakes in many situations.
Temper your thought processes with System 2 and you not only increase the likelihood of thinking more accurately and appropriately, your thinking is actually far more efficient. Take a look at this example: With only System 1 at play when you are looking for a relative at a crowded airport, you could be scanning all the people passing you by, looking for the familiar face. But if you call System 2 into service, you can consciously filter those who have black hair or spectacles, since your relative has neither. The search is faster and more efficient, too.
Is your decision making and judgment always objective and practical?
The answer is a resounding “No!” In fact, our mind is conditioned to be optimistic even when it is not warranted. When undertaking a very risky endeavor, we may remain confident because of this misguided optimism. It clouds our rational ability to gauge risks, learn from past mistakes, or seek advice from people who have expertise in the area. This delusional “feel good” optimism keeps us from investing enough time in planning the endeavor. It gives us the false impression of having a great deal of control over a situation whilst, in fact, this may not at all be true.
While this lack of objective thought is dangerous in many situations, subjectivity helps us make good decisions or judge correctly in others. Think of subjectivity as the element that keeps things in balance and puts them in “perspective.” Consider how looking at the following situation in a purely objective manner might recolor our perspective: Imagine an individual who earns $50 a week, losing a $10 bill through a hole in his pocket. The $10 represents a significant loss to him. The same $10 loss to a person who earns $15,000 a week may be relatively insignificant. It is essential that we take a subjective view in this situation since the reference points of both individuals are so vastly different.
What you need to learn is that pure fact or pure logic should not always be used to draw conclusions or to judge. The person’s circumstances, frame of mind, and other factors have to be considered, too.
Outside influences impact your decisions without your knowledge
Outside influences significantly impact our judgment, decision making, and choices, even though we may be completely unaware it.
Our mind responds to situations based on our previous experiences. For example, you would probably feel that you got a good deal if you bought a product that had been discounted from $30 to $25. However, you wouldn’t feel the same $25 was such a good deal if you had spotted it elsewhere priced at $22. In a similar vein, you tend to dislike a person with whom your first interaction was unsavory because your mind is primed against liking them.
Another influence that impacts our thought processes is our emotional response. When we are exposed to negative news about a specific topic, we tend to let our emotions cloud our judgment. For instance, say we have been reading news reports about a school shooting; we will begin to feel that school is unsafe despite the fact that school shootings are incredibly rare. Our mind unconsciously and inadvertently skews toward the less-rational belief or thought in many such situations. Understanding how and when this happens gives us the power to curb this reflexive tendency of ours and make better, more logical, more accurate decisions.
For instance, imagine you are taking a multiple-choice test and there is a question with four answer options. If you are not fully certain about the answer, chances are you veer towards the one that seems most familiar. That’s because your mind automatically assumes that what is familiar should also be true. Call upon System 2, however, and you would have a much better chance of logically reasoning it out and arriving at the answer through a process that is more practical and rational. Likewise, if you applied your rational mind to the topic of school shootings, you would realize that the chances of such an event happening at your child’s school are actually relatively low.
The role of emotions in decision making
Emotions have a key role to play in the decision-making process, and they impact the accuracy of decisions substantially. In fact, rule-of-thumb concepts, stereotyping, taking “educated guesses,” or following the gut are all very common emotion-based decision-making methods, and they show how much of an impact heuristics have on our decisions. Your System 1 thinking process is keeping accounts in your head—calculating your loss, gain, risk and reward, and attaching emotions to the various outcomes. Whether it is out of fear of regret or to give an impression of expertise or simply down to delusional optimism, our emotions tend to color our decisions significantly.
Emotions impact our decision making and judgment in another way, too. We often respond differently to situations depending on how they are framed, although this is rarely evident to us. This means that the situation, event, or even sentence that has the more powerful emotional connection with us is usually the one that draws our attention. This happens because the sentence or situation evokes an associative memory through System 1. The mind processes what the associative memory conveys and makes a decision on this basis. In doing so, however, not all the pertinent facts may be given the importance they deserve.
For example, doctors may be more likely to opt for a procedure if it has a 90 percent survival rate than if it is described as having a 10 percent mortality rate. The association made in the former case is with survival; a positive outcome for the physician. This prompts System 1 to give weight to a positive decision. We must force our System 2 into action to assess the actual facts and figures of our decisions, rather than letting our emotional responses take control. Only then will we overcome the influence of framing on our decisions.
We must overcome our instinct to follow the path of least resistance
The typical human response is to choose the easiest way when confronted with a situation that requires thought, that is, evokes our System 1 thought process. Our brain tends to placidly move along the path of least resistance whenever it is left to its own devices. So even when you are confronted with a situation that seems dramatically different to what might be deemed “regular,” your brain will accept the least confusing explanation for it.
Our brain is wired so that it wants to believe. Disbelieving is an intensively effortful task. So, left to its own devices, System 1 tends to cover up the gaps and present the situation in the best possible way: in a believable way.
In extremely anxious individuals, the System 2 process is likely to be called in more often. Such people may overanalyze, overthink, and second-guess every decision they make. Yet, even these individuals depend heavily on System 1 in many situations without being aware of it. They do this when they reflexively choose the easier path. For example, when they are given two possible routes that they can take to get to a hotel, they instinctively choose the one that has more familiar landmarks, or the one that is at least partially a known route to them.
This impulse to choose the easiest path can mean our first instinct is to be credulous and gullible. When you are in a very confusing situation, or when you realize a belief is evidently incorrect, only then does System 2 jump into the fray. It slows down your mental process and prompts analytical thought and logical reasoning. We need to encourage our mind to look beyond influences and default instead to rational decisions by looking only at the facts available and ignoring feelings, impressions, and hunches.
Only trust your intuition when you have a basis for your belief
Not everything that happens makes sense, nor is it possible to provide a rational explanation for everything. But our mind tries to create a back-story for every situation to make it more believable. The fact is that to make things easier to understand, our mind creates illusions. Therefore, the information that we believe we base our understanding on may actually be fiction created by the mind.
This invented back-story may then solidify into what we call a “gut feeling.” As a result of this strong gut feeling, you could end up taking a stance on a situation that is completely contrary to the actual facts of the case. Clearly, this is a problem because if your decisions or judgments are not based on real facts they might be very inappropriate or just plain wrong.
So, is gut feeling or intuition just a fallacy? Not always. Intuition does exist, especially the kind that we term “expert intuition.” However, this gut feeling or intuition only arises from the immense experience that you have in your area of expertise. For instance, a highly experienced physician may intuitively “feel” that his patient has a particular problem. This may not be apparent to another physician who is relatively new to the field.
This kind of accurate intuition stems from the mind’s reflexive, instinctive recognition of familiar patterns. As such, intuition may be trusted when it comes from a reliable expert in a field that offers enough predictability to create such patterns. In the case of the physician, he has seen innumerable patients with similar symptoms through his extensive career, and these experiences lay the foundation for his seemingly intuitive diagnosis.
We must therefore be careful to only rely on our intuition when we have a solid basis for trusting our gut feelings. For instance, a mother’s intuition can be trusted, as she knows her child incredibly well. In contrast, an intuitive feeling that someone you know might have a car crash is probably just an irrational fear.
Prospect theory demonstrates that fear of loss motivates many of our decisions
Daniel Kahneman won a Nobel Prize in economics for this theory, which challenged the age-old “value of money” concept that economists have supported for years. Prospect theory states that: 1) the value of money can be assessed only on the basis of every individual’s reference point; 2) every individual is not sensitive to an identical degree about monetary loss; and 3) no one likes to lose money.
Thanks to our System 1 response, the fear of losing money supersedes the satisfaction of gaining money almost every single time. This prompts our mind to pass up great opportunities just because we are averse to the prospect of loss. This is the reason why an investor may hesitate to sell stock even though it is evident that its price is spiraling downwards. His loss aversion stops him from selling when the stock’s price dips below the price he originally paid for the stock, leaving the price to plummet further until the investment is well and truly in the red.
Another demonstration of this loss aversion is the endowment effect, which says that humans ascribe more value to things merely because we own them. We add a notional value to things that we already have, so when we have to sell them, we tend to look for a value that is far greater that their true worth. For example, if you were trying to sell an old watch that belonged to your father, the price you would expect for it may be far higher than what a fair buyer will be willing to pay for it. You unconsciously add a notional value to the watch’s actual worth because of your attachment to it and its association with your father. This association has no value to the buyer, so they can see no justification for your price. Our inherent fear that we are losing something motivates us to offset that loss by securing a higher-than-fair value.
The presentation makes all the difference
Prospect theory highlights the interesting fact that we may make different decisions based on the same facts depending on how the choice is formulated. For example, an investor who is given a choice between an absolutely certain yield of $1,000 and a 50 percent chance of a $2,500 yield may choose the former. The probable yield with the latter may be higher but the way the choice is presented makes it appear as though the guaranteed $1,000 is the most viable option. However, present the same probabilities but in another way and the decision is dramatically different, too. When the same investor is given the choice of a definite loss of $1,000 against a 50 percent chance that zero loss may occur or a $2,500 loss may occur, choosing the latter shows greater risk-seeking behavior when compared to the earlier example.
The prospect theory holds that decision making happens in two stages: editing and evaluation. The editing stage is when the prospects are analyzed, and it is here that presentation can have a massive impact. The evaluation stage is when we choose the prospect that offers the maximum value. But keep in mind that this value is determined by the loss or gain that will need to be undertaken much more than on the final outcome of the decision itself. That is because, as we saw earlier, our System 1 response has a strong aversion to losing money. In fact, this aversion to loss is typically stronger than the attraction we have for a profit-making opportunity. We may avoid taking a decision that will clearly result in a loss, even if it is equally evident that procrastination will cause the final outcome to be even more unfavorable to us.
The bird’s-eye view keeps us focused on one aspect instead of building a complete picture
When you are asked a question that encompasses a number of other questions, your brain tends to take the bird’s-eye view. To make things easier, it focuses on one specific question or tweaks the question to focus on one aspect, one time frame, or one incident. Clearly, this can significantly skew the response you give or the way you understand the question itself.
The brain’s tendency to switch to bird’s-eye view can also be seen in the way we approach our day-to-day lives. The brain tends to focus on what we want and where we expect to end up in the future, and this influences our decision making. Essentially, we are likely to make decisions that bring us closer to what we want in the future. To take a simplistic example, if your dream is to sail round the world in a yacht, you may be inclined to invest in a large boat when you suddenly have a surplus of cash. You may even choose to postpone renovations that could increase the value of your home in favor of your boat just to achieve your dream.
But even if you achieve everything that you ever desired, you may still not feel that you are completely happy. This is because your mind cannot stitch together all of your life’s past experiences, your present situation, and your mental perceptions into one cohesive picture that allows you to weigh up whether you are happier or sadder at the given moment.
The truth is that no single event, situation, or achievement can make you “happy.” A state of happiness depends heavily on several different factors all coming together in your favor. You may think, for example, that you would be happy at work if only you had a bigger paycheck. But even if your boss gives you an unexpected pay rise, you will not immediately love your job. There are undoubtedly many more factors at play that might be preventing you from being happy: your enjoyment of the role, your feeling that you’re working harder than your colleagues, your relationship with your peers. Recognizing this fallacy helps you understand that even when your mind is telling you that things are or are not favorable, the reality may be completely different! We need to abandon the bird’s-eye view in favor of a more holistic view of our situations and experiences.
Our experience plus our memories of the experience shape our perception of happiness
We are comprised of two distinct selves—the actual experience that we undergo (the experiencing self) and the memories that we subsequently make and keep of the experience (the remembering self). This duality causes cognitive illusions where the actual experience we had may be clouded by the memory that is left behind. Typically, you would remember a dinner date that ended badly as a horrible experience, even if the one hour that preceded the horrible ending was blissfully romantic. A mediocre meal that was topped off with a spectacular dessert may remain in your memory as a fantastic meal.
One peculiarity of this heuristic is that the duration of the experience does not seem to make any difference. The memory of the experience that is left behind manages to color the experience itself in every case. In particular, the final portion of the experience is what stays in our mind, and this is what determines how we view that experience as a whole. Importantly, this final conclusion that we draw about the experience influences how we make future decisions. In effect, these future decisions are being made on the basis of our memories of the experiences and not the actual experiences themselves.
Look at it in another way and we can see how this puts a powerful tool in our hands: memories. By ensuring that we constantly create valuable memories of our experiences, we can nudge our mind out of this memory-over-experience illusion. When you start becoming aware of your experiences as you go through them, you begin to consciously reflect on what you are doing. In doing so, you create a set of memories that are more in sync with the real experience, and are therefore a more accurate representation of what happened.
These memories now form a good basis for further decision making, too. This is a critical fact to remember—balancing our memories (i.e., our version of what happened) and our experiences (i.e., what actually happened) is very important. Striking the right balance between the two is exactly what we need to do to improve our ability to make the right decisions and to subdue the influences that can skew our decision-making faculties.
Final summary
Thinking, Fast and Slow explores the two systems of thinking that we unconsciously utilize: System 1, which is driven by intuition; and System 2, which is driven by logical, rational consideration. Our thoughts typically arise from the System 1 process, meaning that they are almost instinctive reactions. These System 1 thoughts color our judgment and decision making very significantly indeed, although we are unaware of this happening most of the time.
System 2 is usually called into action only when we encounter a situation or event that requires some complex thinking or analysis. Even when we actively use our System 2 process of rational and logical reasoning, the System 1 process may still be skewing our decision making to some extent.
In the book, the author presents several heuristics to show how we react irrationally in innumerable situations because we are unconsciously influenced by a variety of external factors and life experiences. When we understand when each of these comes into play and how, we also gain the ability to determine how faulty decision making occurs and what we can do to prevent it.
In order to start making reasonable, rational decisions, we need to look past the influences that might impact our System 1 process and engage our System 2 brain as much as possible. We also need to remain conscious in our experiences to make sure that our remembering self is in accordance with our experiencing self. Only then will we be basing our judgments and decisions on true facts and experiences.
