SLOW DOWN AND THINK

Thinking, Fast and Slow by Daniel Kahneman (Farrar, Straus, and Giroux; 2011)

Humans generally have two modes of perception.  System 1 is intuitive and it tells us all about a person and their immediate context relative to us by looking at their face.  You know when someone is happy, sad, angry, puzzled.  System 2 is effortful and computational; it informs us of our choices for agency by engaging mental concentration.  This book is about the very many errors caused by confusing the two modes.  For example when statisticians intuitively assess statistical data, they are predictably wrong. 

Kahneman is primarily a psychologist, but his Nobel prize was awarded for his work in economics.  Economics is all about choice; and yet since Adam Smith economists have had only a rough, poor, or wrong understanding of how people choose.  Economics is supposed to be about our calculations to maximize our advantages.  This book examines our habitually wrongful processes of intuitive calculation. 

Kahneman’s advises that for anything involving computation, we must slow down and think to avoid error and arrive at the right conclusion.

We easily think well in terms of metaphors.  We can identify causes.  We can associate facts and processes.  But we do not think well easily about statistics.  This leads to overconfidence supported by erroneous inferences of hindsight.  System 1 makes up stories to explain what System 2 misunderstands. 

• You see a woman reading the New York Times.  Is she more likely to hold a doctorate or to lack a high school education? 
• Tom W. is of high intelligence, but lacking true creativity.  He has a need for order and clarity.  His writing is dull and mechanical, but sometimes flashy with puns and allusions to science fiction.  Is he more likely to be a librarian or a farmer?

 If you are primed to spot trick questions, you guessed that the woman was more likely to lack a high school education, and that Tom W. was more likely to be a farmer.  If these, and the many other examples throughout, were just the amusing foibles of the average citizen, this book would have limited value.  Kahneman and his collaborator, the late Amos Tversky, found by careful sampling that scientists who should know better routinely rely on their intuition and therefore produce research results that have a 50% chance of being wrong.

The Law of Small Numbers is the complement of the gambler’s fallacy, the so-called “law of large numbers.”  Flip a coin five times.  Most people will say that HHTHT is a more likely outcome than HHHHH.  But in any large run, both small sets will appear.  The fallacy is the assumption that a small sample reflects the larger population.  The Law of Small Numbers leads us to conclude that recent profits are the result of good management.  That is System 1 talking, telling you a story to explain an intuition. 

This book is dense, replete with examples that are citations to research conducted by Kahneman and Tversky (and others).  A large array of basic truths supports the many thematic points. 

• You cannot refrain from understanding a simple sentence in your own language.
• If you are shown a word in a language you know, you will read it.
• Conservatism is defined as the underestimation of the impact of evidence.
• Frowning increases your vigilance and reduces your overconfidence for intuition. 

Kahneman claims (pp 411-415) that the libertarian policies of the Chicago school of economics must fail to bring the greatest good to the greatest number because humans are not the System 2 rational calculators that economists suppose.  My reply is that if this book were assigned to all 12-year olds, we would be.

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