Kahneman's (2011) stated aim is
to present a view of how the mind works with regard to intuitive judgements and
choices. He proposes a two-system model of mind, one fast, one slow, and then
proceeds to focus mainly on the imperfect role of the fast system in decision
making. He claims that we now understand the marvels and the flaws of intuitive
Kahneman adopts the
terms originally proposed by Stanovich and West (2000); fast
System 1 that functions unconsciously and automatically; and the slower
System 2 that is conscious, operating in low-effort mode normally. These
convenient metaphors describe processes, rather than brain structures.
He believes it easier to explain something in terms of what
it does, rather than what it is, as we naturally construct and interpret
stories about people in terms of personalities, capabilities, and habits.
Kahneman calls this the language of systems.
Kahneman encourages us to mistrust the
impressions generated by System 1, and because it cannot be turned off, ideally
we should increase the level of monitoring by System 2. However, acknowledging
this is impractical all the time he proposes a compromise; learn to recognize
situations in which mistakes are likely, and if the situation is critical, try
to avoid mistakes.
[Thus far we
could model the mind as suggested by Kahneman, see figure 1, with the "lazy"
System 2 happy to let System 1 get on with the routine. The problem he
highlights is that System 1 does not always get things right, it is prone to
systematic errors and biases in making intuitive judgements and choices. But
because it takes considerable effort for slow System 2 to keep a check on
System 1 it tends to come into play only when events in the world clash with
the model of the world we have built in our own minds.]
|Unconscious control of
|Conscious algorithmic mind
deals with slow
exertion of self-control
|Fig. 1. Fast System 1 / Slow System
then proceeds to explain in more detail the defining features of System 1 and
System 2, and the various systematic errors and biases to which we are prone.
For instance, accepting an automatic judgement based upon an emotional response
(System 1); rather than thinking about the situation in a methodical way, and
then making an informed decision (System 2).]
Wonders and limitations
Kahneman describes one of the main functions of System 1, to
maintain and update a model of your personal world, which represents what is
normal in it. This model determines your interpretation of the present as well
as your expectations of the future. A capacity for surprise is an essential
aspect of our mental life, and surprise is the most sensitive indication of how
we understand our world
and what we expect from it.
Finding causal connections is part of understanding a
story, an automatic operation of System 1. System 2, the conscious self,
is offered the causal explanation and accepts it. Kahneman explains
that we have limited information about what happened on a day, and System 1 is
adept at finding a coherent causal story that links the fragments of knowledge
at its disposal.
normal state of mind is that of having intuitive feelings and opinions about
almost everything that comes your way.
Kahneman proposes a simple account of how we generate
intuitive opinions on complex matters. He states
that, "If a satisfactory answer to a hard question is not found quickly System
1 will find a related question that is easier and will answer it." He calls
this substitution. [i.e., How do I feel about this.] This is the
core of what became the heuristics and biases approach that he and
[heuristics: the principles used to make decisions when all
possibilities cannot be explored, (Chambers, 2014)]
Heuristics & Biases
Citing Slovic et
al, they eventually developed the notion of an affect heuristic, in which
people make judgements and decisions by consulting their emotions. People form
opinions and make choices that directly express their feelings and their basic
tendency to approach or avoid, often without knowing that they are doing so.
The affect heuristic is an instance of substitution, in which the answer to an
easy question (how do I feel about it?) serves as an answer to a much harder
question (what do I think about it?).
Kahneman notes that life presents us
with many occasions to forecast. Some predictive judgements, such
as those made by engineers, rely largely on look-up tables, precise
calculations, and explicit analyses of outcomes observed on similar occasions.
Others involve intuition and System 1, in two main varieties. Some intuitions
draw primarily on skill and expertise acquired by repeated experience. A
solution to a current problem comes to mind quickly because familiar cues are
explains that narrative fallacies arise inevitably from our continuous attempt
to make sense of the world. Citing Taleb, we are said to constantly fool
ourselves by constructing flimsy accounts of the past and believing them to be
The core of the
illusion is that we believe we understand the past, which implies that the
future also should be known, but in fact we understand the past less than we
believe we do.
Kahneman explains that System 1 is designed to jump to
conclusions from little evidenceand it is not designed to know the size
of its jumps. Because of WYSIATI (what you see is all there is), only the
evidence at hand counts. Because of confidence by coherence, the subjective
confidence we have in our opinions reflects the coherence of the story that
System 1 and System 2 have constructed. The amount of evidence and its quality
do not count for much, because poor evidence can make a very good story. For
some of our most important beliefs we have no evidence at all, except that
people we love and trust hold those beliefs. Considering how little we
know, the confidence we have in our beliefs is preposterousand it is also
confidence in a judgement is not reasoned evaluation of probability that this
judgement is correct. Confidence is a feeling, which reflects the coherence of
the information and the cognitive ease of processing it. It is wise to take
admissions of uncertainty seriously, but declarations of high confidence mainly
tell you that an individual has constructed a coherent
Kahneman asks, if subjective confidence is not to be
trusted, how can we evaluate the probable validity of an intuitive judgement.
The answer comes from two basic conditions for acquiring skill:
He states that when these
two conditions are satisfied, intuitions are likely to be skilled. Chess is a
regular environment, athletes and firefighters also face complex but
fundamentally ordered situations. The accurate intuitions are due to
highly valid clues that the expert's System 1 has learned to use, even if
System 2 has not learned to name them. But stock pickers and political
scientists who make long-term forecasts operate in a zero-validity environment.
Kahneman encourages us to remember this rule: intuition
cannot be trusted in the absence of stable regularities in the
environment that is sufficiently regular to be predictable
opportunity to learn these regularities through prolonged practice.
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After five years he and Tversky published "Prospect
theory: An Analysis of Decision under Risk." Their theory was closely modelled
on utility theory but departed from it in fundamental ways. Most important, the
model was purely prescriptive, and its goal was to document and explain
systematic violations of the axioms (elementary rules) of rationality in
choices between gambles.
choices are based not on dollar values but on the psychological values of
outcomes, their utilities. The psychological value of a gamble is therefore not
the weighted average of possible dollar outcomes; it is the average of the
utilities of these outcomes, each weighted by its
Kahneman believes that
many of the options that we face in life are "mixed"; there is a risk of a loss
and an opportunity for gain, and we must decide whether to accept the gamble or
reject it. Investors who evaluate a start-up, lawyers who wonder whether to
file a lawsuit, wartime generals who consider an offensive, and politicians who
must decide whether to run for office, all face the possibilities of victory or
defeat. The research findings reported led them to conclude that
"losses loom larger than gains" and that people are loss
[Here Kahneman is arguing that people are loss
averse; so presumably in the examples above, investors, lawyers, generals and
politicians will be more reluctant than willing to proceed. But he does
acknowledge that these same groups may proceed against the odds due to
concept of loss aversion is certainly the most significant contribution of
psychology to behavioural economics. Kahneman now embeds loss aversion in the
context of a broader two-systems model of the mind, and specifically a
biological and psychological view in which negativity and escape dominate
positivity and approach.
The brains of humans and other animals contain a mechanism
that is designed to give priority to bad news. By shaving a few
hundreths of a second from the time needed to detect a predator, this circuit
improves the animal's odds of living long enough to reproduce. The automatic
operations of System 1 reflect this evolutionary history.
How do people make the judgments and
how do they assign decision weights? Kahneman offers two oversimplified
overestimate the probabilities of unlikely events.
overweight unlikely events in their decisions.
We refuse to cut our losses when doing so would be to admit
failure, we are biased against actions that could lead to regret, and we draw
an illusory but sharp distinction between omission and commission, not doing
and doing, because the sense of responsibility is greater for one than the
If you require some cash, you
will sell a stock that makes a profit rather
than one that will make a loss, if the alternatives are framed as a choice
between giving yourself pleasure and causing yourself pain. Finance research
has documented a massive preference for selling winners rather than
losersa bias that has been given an opaque label: the disposition
effect, an instance of narrow framing." He explains that a rational
agent would have a comprehensive view of a portfolio and sell the stock that is
least likely to do well in the future, without considering whether it is a
winner or a loser.
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now believes that the goals people set for themselves are so important to what
they do and how they feel about it that an exclusive focus on experienced
well-being is not tenable. He argues that we cannot hold a concept of
well-being that ignores what people want. On the other hand, he also believes
it true that a concept of well-being that ignores how people feel as they live,
and focuses only on how they feel when they think about their life, is also
untenable. We must accept the complexities of a hybrid view, in which the
well-being of both selves is considered.
The mistake that people make in the focussing illusion
involves attention to selected moments and neglect of what happens at other
times. The mind is good with stories, but it does not appear to be well
designed for the processing of time. Kahneman suggests we have learned that the
word happiness does not have a simple meaning and
should not be used as if it does.
The possibility of conflicts between the remembering self and the
interests of the experiencing self turned out to be a hard
remembering self is a construction of System 2. However, the distinctive
features of the way it evaluates episodes and lives are characteristics of our
memory. Duration neglect and the peak-end rule originate in System 1 and do not
necessarily correspond to the values of System 2.
The remembering self's neglect of duration,
its exaggerated emphasis on peaks and ends, and its susceptibility to
hindsight, combine to yield distorted reflections of our actual experience.
Although Humans are not
irrational, they often need help to make more accurate judgements and better
decisions. An Econ [imaginary totally rational being] will read and
understand the fine print of a contract before signing it, but [emotional]
humans usually do not.
System 2 is who we think we are. System 2 articulates judgments and makes
choices, but it often endorses or rationalizes ideas and feelings that were
generated by System 1 [supporting stories]. But System 2 is not
merely an apologist for System 1; it also prevents many foolish thoughts and
inappropriate impulses from overt expression. However, System 2 is
not a paragon of rationality. Its abilities are limited and so is the knowledge
to which it has access. We do not always think straight when we reason, and the
errors are not always due to intrusive and incorrect intuitions. Often we make
mistakes because we (System 2) do not know any better.
System 1 is indeed the origin of much of what we do
wrong, but it is also the origin of most of what we do rightwhich is most
of what we do. Our thoughts and actions are routinely guided by System 1 and
generally on the mark. One of the marvels is the rich and detailed model of our
world that is maintained in associative memory: it distinguishes surprising
from normal events in a fraction of a second, immediately generates an idea of
what was expected instead of a surprise, and automatically searches for some
causal interpretation of surprises and of events as they take
Memory also holds
the vast repertory of skills we have acquired in a lifetime of practice, which
automatically produce adequate solutions to challenges as they arise. All
this is the work of System 1, which means it occurs automatically and fast. A
marker of skilled performance is the ability to deal with vast amounts of
information swiftly and efficiently.
System 1 registers the cognitive ease with which it
processes information, but it does not generate a warning signal when it
becomes unreliable. Intuitive answers come to mind quickly and confidently,
whether they originate from skills or heuristics. There is no simple way for
System 2 to distinguish between a skilled and heuristic response.
Its only recourse is to slow down and attempt to construct an answer on its
own, which it is reluctant to do. Many suggestions of System 1 are casually
endorsed with minimal checking. This is how System 1 acquires its bad
reputation as the source of errors and biases.
Kahneman asks what can be done about biases? He
stresses that little can be achieved without a considerable investment of
The way to block
errors that originate in System 1 is simple in principle: recognize the signs
that you are in a cognitive minefield, slow down, and ask for reinforcement
from System 2. Unfortunately this sensible procedure is least likely to be
applied when it is needed most. More doubt is the last thing you want when you
are in trouble. The upshot is that it is much easier to identify a minefield
when you observe others wandering into it than when you are about to do so
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