Thinking, Quick and Slow – By Daniel Kahneman – Book Review
In 2002, Daniel Kahneman won the Nobel in financial science. What made this unusual is that Kahneman is a psychologist. Specifically, he is one-half of a pair of psychologists who, beginning within the early Seventies, got down to dismantle an entity lengthy expensive to financial theorists: that arch-rational resolution maker known as Homo economicus. The other half of the dismantling duo, Amos Tversky, died in 1996 on the age of 59. Had Tversky lived, he would definitely have shared the Nobel with Kahneman, his longtime collaborator and expensive friend.
Human irrationality is Kahneman’s great theme. There are primarily three phases to his career. In the first, he and Tversky did a series of ingenious experiments that revealed twenty or so “cognitive biases” — unconscious errors of reasoning that distort our judgment of the world. Typical of these is the “anchoring impact”: our tendency to be influenced by irrelevant numbers that we occur to be exposed to. (In a single experiment, as an illustration, experienced German judges have been inclined to offer a shoplifter an extended sentence in the event that they had just rolled a pair of cube loaded to provide a high number.) Within the second section, Kahneman and Tversky showed that folks making decisions below uncertain circumstances don’t behave in the way in which that financial fashions have traditionally assumed; they don’t “maximize utility.” The 2 then developed an alternative account of resolution making, one more devoted to human psychology, free audible books which they called “prospect theory.” (It was for this achievement that Kahneman was awarded the Nobel.) Within the third phase of his career, primarily after the dying of Tversky, Kahneman has delved into “hedonic psychology”: the science of happiness, its nature and its causes. His findings in this space have proved disquieting — and never just because one of many key experiments involved a deliberately extended colonoscopy.
“Thinking, Quick and Sluggish” spans all three of those phases. It’s an astonishingly rich book: lucid, profound, full of mental surprises and self-assist value. It is persistently entertaining and regularly touching, particularly when Kahneman is recounting his collaboration with Tversky. (“The pleasure we found in working collectively made us exceptionally patient; it is a lot simpler to strive for perfection if you find yourself never bored.”) So impressive is its vision of flawed human reason that the New York Times columnist David Brooks recently declared that Kahneman and Tversky’s work “shall be remembered hundreds of years from now,” and that it is “an important pivot point in the way we see ourselves.” They’re, Brooks said, “like the Lewis and Clark of the mind.”
Now, this worries me a bit. A leitmotif of this book is overconfidence. All of us, and especially consultants, are liable to an exaggerated sense of how well we understand the world — so Kahneman reminds us. Surely, he himself is alert to the perils of overconfidence. Regardless of all of the cognitive biases, fallacies and illusions that he and Tversky (together with different researchers) purport to have discovered in the previous few decades, he fights shy of the bold claim that people are fundamentally irrational.
Or does he? “Most of us are healthy most of the time, and most of our judgments and actions are acceptable most of the time,” Kahneman writes in his introduction. Yet, just a couple of pages later, he observes that the work he did with Tversky “challenged” the idea, orthodox among social scientists in the Seventies, that “people are usually rational.” The 2 psychologists discovered “systematic errors within the thinking of regular individuals”: errors arising not from the corrupting effects of emotion, but constructed into our advanced cognitive machinery. Although Kahneman draws only modest coverage implications (e.g., contracts needs to be stated in clearer language), others — maybe overconfidently? — go a lot further. Brooks, for example, has argued that Kahneman and Tversky’s work illustrates “the bounds of social coverage”; specifically, the folly of presidency motion to combat joblessness and switch the financial system around.