I bought this book up at the airport on my holidays last summer. Sitting in a café in Budapest one wet rainy afternoon I got stuck in. Then the weather picked up and the reading slowed down. ‘Thinking, Fast and Slow’ got left behind and I only got around to properly reading it in the last few weeks.
I found it a challenging read as it is full of detail and peppered with psychology and economic terminology that I needed to get more familiar with. That said, it was a beautiful read as I felt I got a real sense of how Kahneman and Tversky worked together and their passion for their chosen subject. The book is jam-packed with research conducted over decades explaining how we make judgements and decisions and the downside of placing too much weight on human judgement.
The book sets out to explain two modes of thought – System 1 and System 2 and does so with rich examples and practical implications. System 1 is fast, instinctive and emotional while System 2 is slower, more deliberate and more logical. System 1 generates impressions, feelings and inclinations and when endorsed by system 2, these become beliefs, attitudes and intentions. System 2 monitors System 1.
Part two of the book was my favourite section. It took a deep dive into heuristics and biases and really made me question my own decision making. I reread this section at least once more! Setting out why we struggle to think statistically, moves through great examples of why we need confident sample sizes in research and analytics to the limitations our past experiences place on our ability to truly assimilate new knowledge. The book explains how the availability heuristic can lead us to make poor judgements based on the information close at hand rather than looking for the statistics to validate the true occurance. This can lead us to be over confident in our judgements or indeed become more risk averse when there is no real risk present. The example here is the coincidence of two plane crashes in the previous month causing the subject to take the train instead, when the real likelihood of a plane crash has not increased. Finally this section deals with our tendency to fear losses more than we value gains and this loss aversion is often times missplaced.
The section on overconfidence is summed up beautifully in the line “This is a case of over confidence. They seem to believe they know more than they actually do know”. Kahneman refers to the acrynom WYSIATI – what you see is all there is – to explain how when we make a decision, we primarily deal with what we know or have already observed. We rarely consider known unknowns, never mind unknown unknowns.
How we make choices are intrisically linked to how we frame them. The reference points we use are very influential to the outcome. Comparing a Candidate to his/her past performance versus to their peers can give very different ratings. One example that comes closer to home is the opt out versus opt in marketing permission … “they ask you to check the box to opt out of their mailing list. Their list would shrink if they asked you to check a box to opt in”, though of course I know you are all big fans of permissable marketing and are using opt ins!
Through the book Kahneman references the twinnings of the roles and functions of System 1 fast, instinctive and emotional compared to System 2, slow, deliberate and logical. He uses two species the Econs who live in the land of theory and the Humans who live in the real world, concepts borrowed from economics. The two selves, the experiencing self, which does the living and the remembering self which keeps score and makes choices. These three pairs and the many and deep examples of how they shape and influence our judgements and choices make this book a valuable read. It calls out the marvels as well as the flaws of intuative thought, which is a punctuation in decision making we could all do with considering from time to time.
I’d recommend ‘Thinking, Fast and Slow’ to decision makers in roles across Strategy, IT, Marketing and Business. It may not change the outcome, but it might refine your decision making process.
We’d love more people to get involved so if you’d like to see what’s on our reading list drop Tara a line and she’ll send it on email@example.com
13th May, 2016 by Tara Grehan