What We’re Reading: “Thinking, Fast and Slow”

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What We’re Reading: “Thinking, Fast and Slow”

Thinking, Fast and Slow by Daniel Kahneman was our company book club read for the fourth quarter of 2017. Written by a Nobel Prize winner in economics, the book explores whether we as human make rational decisions.

As a team, we explored our quick-and-intuitive “System 1” and our deliberate and calculating “System 2” that comes online when habit and practiced experience can’t handle a situation promptly. Unfortunately, System 2 requires some prodding to come online, and even when it does, it makes flawed deductions.

Our minds are prone to biases both seen and unseen.

This summary from the New York Times Book Review does a neat job of illustrating:

“To see how, consider what Kahneman calls the “best-known and most controversial” of the experiments he and Tversky did together: “the Linda problem.” Participants in the experiment were told about an imaginary young woman named Linda, who is single, outspoken and very bright, and who, as a student, was deeply concerned with issues of discrimination and social justice. The participants were then asked which was more probable: (1) Linda is a bank teller. Or (2) Linda is a bank teller and is active in the feminist movement. The overwhelming response was that (2) was more probable; in other words, that given the background information furnished, “feminist bank teller” was more likely than “bank teller.” This is, of course, a blatant violation of the laws of probability. (Every feminist bank teller is a bank teller; adding a detail can only lower the probability.) Yet even among students in Stanford’s Graduate School of Business, who had extensive training in probability, 85 percent flunked the Linda problem. One student, informed that she had committed an elementary logical blunder, responded, “I thought you just asked for my opinion.”

Kahneman also dissects the expertise of professionals in sports management, stock trading and so on. In many cases they were not beating the averages or the market forces, despite their fierce competition and generous bonus rewards for high performance. This caused us to reflect seriously on our own perceptions of expertise and look critically at this: for what work can we take credit versus what would have happened without our interference? Which avenues of online marketing are so effective we know we are having an impact, versus areas in which we are adjusting to unknown algorithms and perhaps performing only as well as if we left things alone? This thinking will impact our product offerings and expectations for 2018.

Kahneman also writes about the difference between the “experiencing self” and the “remembering self.” This is a topic that was raised in the book, “All Joy and No Fun,” about the experience of parenting. The remembering self tends to selectively edit the past and is biased toward how things ended. For example, a marriage that ends in a painful divorce may be remembered as wholly bad, despite a number of years of happy times. And it is the remembering self that makes the decisions.

The beginning of a new year, when we look back and draw conclusions about the prior year, is a good time to be reminded that our recollections are biased by “duration neglect” and the “peak-end rule.”

 

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