Thinking Fast and Slow (2011) | Daniel Kahneman
Gotten around to finishing Daniel Kahneman's book Thinking Fast and Slow. It's quite fascinating.
Here he describes two thinking systems in the mind; System 1 and System 2.
System 1 is automatic. System 2 is deliberate. System 1 is fast. System 2 is slow.
Intuitions fall on System 1. Active and effort-full calculation is on System 2.
Because System 1 is automatic, it is easily influenced. System 2 requires to actively decode and rationalize information. As good as System 2 is, it is lazy and can be easily exhausted.
He covers a lot more on how our decisions are affected; predictions, risks, choices and the stories we tell ourselves.
One in terms of Decision Making, he brings about the errors of the Expected Utility theory, one of which is the lack of a reference point. He, along with Amos Tversky, fosters the Prospect theory as a more robust economic theory than the previous one.
(People respond to losses stronger than to supposedly equal gains. Loss Aversion.)
He explains two important facets of the Prospect theory is the Possibility effect and the Certainty Effect. Possibility Effect is the psychological impact when a probability from 0% to a higher percent is given heavier decision weight than it should. Certainty effect on the other hand is the psychological impact from a reduction of a sure thing to something less probable (100% to 90%).
Then combining the weight people place on gains and losses, they created the fourfold pattern which illustrates the way people react to high and low probabilities, possibility and certainty.
For high probabilities of gains, people tend to be risk-averse.
For high probabilities of loss, people become risk-seeking.
For low probabilities of gains, people tend to be risk-seeking, (ex. Lotteries)
For low probabilities of loss, people become risk-averse. (ex. Insurance)
Another distinction he makes is our Experiencing Self and our Remembering Self. Memory vs. Experience. Often times the construct of our Remembering Self can be inaccurate because it averages the experience of an activity from it's peak and the end. It neglects the duration regardless for pain or pleasure. On the other hand,our Experiencing self has a short span and it easily forgets.
He states that "Attention is key. Our emotional state is largely determined by what we attend to." For normal routine circumstances, an awareness of the circumstance gives meaning to the activity. "To get pleasure from eating, you must notice that you are doing it."
(It appears self-awareness is a skill worth learning)
He also brings to light measuring the happiness and unhappiness index of countries. After a survey of people around the world, he concludes one source of happiness. "It is only a slight exaggeration to say that happiness is the experience of spending time with people you love and who love you."
Among other things that stood out to me are
Here he describes two thinking systems in the mind; System 1 and System 2.
System 1 is automatic. System 2 is deliberate. System 1 is fast. System 2 is slow.
Intuitions fall on System 1. Active and effort-full calculation is on System 2.
Because System 1 is automatic, it is easily influenced. System 2 requires to actively decode and rationalize information. As good as System 2 is, it is lazy and can be easily exhausted.
He covers a lot more on how our decisions are affected; predictions, risks, choices and the stories we tell ourselves.
One in terms of Decision Making, he brings about the errors of the Expected Utility theory, one of which is the lack of a reference point. He, along with Amos Tversky, fosters the Prospect theory as a more robust economic theory than the previous one.
(People respond to losses stronger than to supposedly equal gains. Loss Aversion.)
He explains two important facets of the Prospect theory is the Possibility effect and the Certainty Effect. Possibility Effect is the psychological impact when a probability from 0% to a higher percent is given heavier decision weight than it should. Certainty effect on the other hand is the psychological impact from a reduction of a sure thing to something less probable (100% to 90%).
Then combining the weight people place on gains and losses, they created the fourfold pattern which illustrates the way people react to high and low probabilities, possibility and certainty.
For high probabilities of gains, people tend to be risk-averse.
For high probabilities of loss, people become risk-seeking.
For low probabilities of gains, people tend to be risk-seeking, (ex. Lotteries)
For low probabilities of loss, people become risk-averse. (ex. Insurance)
Another distinction he makes is our Experiencing Self and our Remembering Self. Memory vs. Experience. Often times the construct of our Remembering Self can be inaccurate because it averages the experience of an activity from it's peak and the end. It neglects the duration regardless for pain or pleasure. On the other hand,our Experiencing self has a short span and it easily forgets.
He states that "Attention is key. Our emotional state is largely determined by what we attend to." For normal routine circumstances, an awareness of the circumstance gives meaning to the activity. "To get pleasure from eating, you must notice that you are doing it."
(It appears self-awareness is a skill worth learning)
He also brings to light measuring the happiness and unhappiness index of countries. After a survey of people around the world, he concludes one source of happiness. "It is only a slight exaggeration to say that happiness is the experience of spending time with people you love and who love you."
Among other things that stood out to me are
- Regression to the mean. Which we should consider when making forecasts.
- Algorithm beats expert advice. Expert advice is good for cases with normal, regular patterns.
- The framing of a message, has an effect to its outcome.
