Thinking, Fast and Slow - Book Review

 Book Review #15

Daniel Kahneman elucidates in "Thinking, Fast and Slow" - The amount and quality of evidence don't count for much as long as the poor evidence can make a good story. This is because we typically operate through confidence by coherence. Preposterously, some of the most important beliefs we hold have no evidence, but we hold them because the ones we love and trust hold these beliefs. Considering how little we know the confidence we have in these beliefs is preposterous.

Honestly, I struggled to finish this heavy book (not in terms of pages but in terms of concepts) that challenged so many concepts of how we think and operate. As usual, let me try to summarize my key takeaways from it

1) Two Systems: Our mind operates in two modes/systems that co-exist. System 1 operates quickly and automatically with no sense of voluntary control. System 2 does the effortful logic, mental analysis and computations. While we would like to believe that we operate through System 2, overwhelmingly we are driven through System 1. From an evolutionary basis that is good, and it has helped us thrive, but it also leads to many challenges and fallacies in how we operate and hence System 1 is the hero of the book.

2) Jumping to conclusions: “What You See Is All There Is” (WYSIATI) is the basis for System 1 to draw conclusions with readily available but sometimes misleading information. Halo effects, Confirmation bias and base-rate neglect are all manifestations of this.

3) Substitution: When faced with a difficult question, we transform the question into an easier one that we can. Example, when asked “How happy are you with life”, we substitute with, “What is my mood now”. A very useful heuristic but often leads to incorrect conclusions.

4) Small Numbers/Causes trump Statistics: We have exaggerated faith in results from small sample numbers and in general we like to latch into individual examples or accounts even though statistics may reveal a completely different picture. The statistical examples on how wealth advisors add negligible value were really telling.

5) Loss Aversion: The pain of losing is much more powerful than the pleasure of winning. And when faced with choices people always make the choices that can cut losses.

6) Expected Utility and Prospect Theory: Kahneman critiques Bernoulli's Utility Theory and expounds several chapters explains why basic economic thinking cannot adequately explain (rational/irrational) human behaviour. Loss aversion combined with frames of reference help us understand Prospect theory

7) Two Selves: We all have an Experiencing Self and a Remembering self. The Remembering Self drives a lot of decision making (like a bad memory making us avoid some options) but driving decisions through the Experiencing self can make you happy and fulfilled in the long run.

Thanks, Hariharasudhan R for gifting me this book.

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