Thinking, Fast and Slow by Daniel Kahneman: A Book Review

Daniel Kahneman’s Thinking Fast and Slow is one of my favourite books. Up until today, I’ve never really shared my full reading notes on Daniel Kahneman’s Thinking Fast and Slow. So, here we go. Let’s take a look at the reason why I love the book so much.

Note: If you are interested to buy a copy of Daniel Kahneman’s Thinking Fast and Slow. You can do so by clicking on the book cover or click the Buy Now button below.

The phenomenal international bestseller (2 million copies sold) will change the way you make decisions

‘A lifetime’s worth of wisdom’ Steven D. Levitt, co-author of Freakonomics
‘There have been many good books on human rationality and irrationality, but only one masterpiece. That masterpiece is Thinking, Fast and Slow’ Financial Times

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I would recommend similar books to Kahneman’s:

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Thinking Fast and Slow: Our Two Systems and What They Mean

When we have to make sense of something, we think about it. To understand this process, consider a model that says people apply two cognitive systems. In Thinking Fast and Slow, Daniel Kahneman termed them as System 1 Thinking and System 2 Thinking.

Thinking Fast: System 1 Thinking

The first is System 1, or the mental processing that reads emotions and handles our automatic skills. For example, driving a car or adding two plus two. System 1 takes over our thinking when we comprehend simple statements (such as “complete the phrase ‘bread and . . .’”), or instinctively turn to see where a noise is coming from.

System 1 supplies associated meanings (including stereotypes) rapidly and involuntarily.

Thinking Slow: System 2

We use System 2 when you’re focusing on specific details. For example, counting or figuring out how to complete our income tax forms. System 2 applies effort consciously. Such as when we do complicated math, trying new physical activities or search for a specific person in a crowd.

System 2 thinking is slower, but we need it for methodical thinking processes such as formal logic.

“The main function of System 1 is to maintain and update a model of your personal world, which represents what is normal in it.”

Quote from Thinking, Fast and Slow by Daniel Kahneman
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We tend to undervalue System 1

Human beings tend to value the measured System 2 while dismissing the mechanical System 1. However, the reality is much more complicated. These mental processes involved a division of labour when it comes to thinking, and they constantly interact. You usually live in System 1’s world, where its fast processing is extremely efficient.

In fact, we can be reasoning about a task in System 2, get tired or distracted. Then find that we’ve shifted over to System 1 without even realizing it. If we’ve ever puzzled over an optical illusion, we’ve experienced what happens when these two systems work at cross-purposes.

Thinking Fast and Slow: Duality and Collaboration

Which system you use and how you think depends a lot on the effort you are expending. When we doing something easy, like strolling on a known path, we’re using System 1. During which we have a lot of cognitive capacity left for thinking.

However, if you push the pace to a speed walk, System 2 switches on to maintain your effort. Now try to solve an arithmetic problem, and you’re likely to stop walking altogether; your brain can’t handle the additional burden.

Recent lab studies show that intense System 2 concentration lowers the body’s glucose levels. If your System 2 is busy, you’re more likely to stereotype, give in to temptation or consider issues only superficially.

“People who are ‘cognitively busy’ are…more likely to make selfish choices, use sexist language and make superficial judgments in social situations.”

Quote from Thinking, Fast and Slow by Daniel Kahneman
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System 1 likes quick straightforward answers

Among key characteristic of System 1 is that it likes to jump on the straightforward answer. So if a seemingly correct solution quickly appears when you face a challenge, System 1 will default to that answer and cling to it. Even if later information proves it wrong.

On top of that, system 1 performs rapid associative activation. Pair two words, or a word and an image, and your mind will link them. Weaving a story from those scraps of information.

Priming

In the phenomenon of priming, if you see the word “banana” followed by the word “vomit,”. Your mind creates an instantaneous connection that causes a physical reaction. Similarly, if exposed to the word “eat,” you will more likely complete the sequence S-O-_-P as “soup” rather than “soap.”

“A compelling narrative fosters an illusion of inevitability.”

Quote from Thinking, Fast and Slow by Daniel Kahneman

Using System 1 preference to persuade others

When we want to persuade others, we need to appeal to their System 1 preference. This is done using simple, memorable information.

Some example of doing so include:

  • Use a bold font in your reports
  • Try rhyming slogans in your advertising (Example: Beetle up)
  • Make your company’s name easy to say. (example: Tesla)

These tendencies are markers of System 1’s larger function, which is to assemble and maintain our view of the world.

System 1 likes consistency: Seeing a car in flames stands out in your mind. If we see a second car on fire at roughly the same spot. Our system 1 will label it “the place where cars catch fire.

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Making Meaning, Making Mistakes

Making the world to be linked and meaningful

System 1 prefers the world to be linked and meaningful. So if we are dealing with two discrete facts, it will assume that they are connected. It seeks to promote cause-and-effect explanations.

Similarly, when we observe a bit of data, our System 1 presumes that we’ve got the whole story. The what you see is all there is or WYSIATI tendency is very powerful in colouring your judgments.

The halo effect

For example, if all we have to go on is someone’s appearance. our System 1 will fill in what we don’t know. That’s the “halo effect.”

For example, if an athlete is good looking, you’ll assume he or she is also skilled.

“When an unpredicted event occurs, we immediately adjust our view of the world to accommodate the surprise.”

Quote from Thinking, Fast and Slow by Daniel Kahneman
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System 1 responsible for Anchoring bias

System 1 is also responsible for anchoring. In which we unconsciously tie our thinking on a topic to the information we’ve recently encountered, even if the two have nothing to do with one another.

For example, mentioning the number 10 and then asking how many African countries belong to the United Nations will produce lower estimates than if you mentioned 65 and asked the same question. In the first round, we anchor the statement at 10, and the second round, we anchor the statement at 65. Hence, they are likely to produce lower estimates when number 10 is mentioned.

System 2 the endorser

If we are not careful, System 2 can magnify your mistakes by finding reasons for us to continue believing in the answers and solutions we’ve generated. System 2 normally doesn’t dispute what System 1 presents; but rather, it acts as the endorser of how System 1 seeks to categorize our world.

“Facts that challenge…basic assumptions – and thereby threaten people’s livelihood and self-esteem – are simply not absorbed.”

Quote from Thinking, Fast and Slow by Daniel Kahneman
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Our natural tendency

The natural tendency to focus on the message’s content rather than its relevance affects our ability to judge. We tend to take on lucid examples to shape our fears and plans for the future.

For example, media coverage of dramatic but infrequent events like accidents and disasters such as aeroplane crashes – as opposed to dull but common threats like strokes and asthma – sets those events up as anchors that people use to make wildly inaccurate assessments about where the risks are higher. Hence, this indicates the clear magnitude of influence mass media holds in shaping our view of the world.

“The idea that the future is unpredictable is undermined every day by the ease with which the past is explained.”

Quote from Thinking, Fast and Slow by Daniel Kahneman

People also reason incorrectly when they don’t recognize the regression to the mean. Over time, everything tends to return to the average. But people create and apply causal interpretations to what are, in effect, random events.

For example, if a football player who has a strong first year but failed to live up to expectation the next season. Fans might ascribe the decline to any number of rationales but, in reality, the player was probably just more fortunate in his initial outings than in later ones. The player might be just another one-season wonder boy. Luck does play an important role in our life.

Thinking Fast and Slow: Distorted Reality and Optimism

Narrative fallacy

Simplification is at work in the narrative fallacy. Where the mind’s inclination toward the plain, tangible and cohesive instead of the theoretical, contradictory and vague.

We tend to derive meaning from stories that emphasize individual characteristics like virtue and skill but discount the role of luck and statistical factors. One of the best books we can read to learn more about this is Malcolm Gladwell’s Outliers.

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Hindsight bias

We tend to focus on a few striking events that happened rather than on the countless events that failed to happen. Due to hindsight bias, we might distort reality by realigning our memories of events to jibe with new information. When telling stories about events we’re involved in, we tend to be overly optimistic and predisposed to overvaluing our talents relative to those of others.

On top of that, we also will give our knowledge greater weight than it should have.

“We are confident when the story we tell ourselves comes easily to mind, with no contradiction and no competing scenario. But ease and coherence do not guarantee that a belief held with confidence is true.”

Quote from Thinking, Fast and Slow by Daniel Kahneman

Pervasive optimism is useful for the economy in many ways because entrepreneurs and inventors tend to start new businesses all the time. Notwithstanding the overwhelming odds against them. Despite knowing that roughly only a third of enterprises make it to their fifth anniversary, more than 80% of American entrepreneurs would rate their ability to beat that statistic as high; fully a third said their chance of failing was zero.

Hence, I would always be careful with the so-called foolproof business plans. Remember, when things look too good to be true, it probably is.

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Thinking Fast and Slow: Experts and Risk

Intuition and validity

System 1 influences how candidly people assess their own intuition and validity. Which means that not all experts always provide great counsel. Expertise relies on an individual’s skill, feedback and practice.

For example, firefighters’ repeated practice in weighing the risks posed by specific types of fires and their experience in extinguishing those fires. This gives them an impressive ability to read a situation intuitively and identify crucial patterns.

Similarly, an anesthesiologist relies on regular, immediate medical feedback to keep a patient safe during surgery.

“Most of us view the world as more benign than it really is, our own attributes as more favorable than they truly are, and the goals we adopt as more achievable than they are likely to be.”

Quote from Thinking, Fast and Slow by Daniel Kahneman

Caution on expert opinions

Don’t put too much trust in the judgment of experts in fields where challenges vary greatly, where luck determines success, and where too great a gap exists between action and feedback. Those who predict stock values and political contests, for instance, are prone to fall into this category.

This is because System 1 comfort experts with quick answers to difficult questions, their intuition may be flawed, but your System 2 is unable to detect those inconsistencies since we’re not expert or learned in the field.

“Organizations that take the word of overconfident experts can expect costly consequences.”

Quote from Thinking, Fast and Slow by Daniel Kahneman
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Risk and value

We’re especially prone to unclear thinking when making decisions about risk and value. Most people are loss averse: Meaning we hate to lose $100 more than we like winning $150.

However, financial traders tend to demonstrate less of an emotional, System 1-type reaction to losses. Individuals also suffer from the endowment effect: When something belongs to us, even if only for a brief period of time, we tend to overestimate its value relative to the value of things we don’t own.

For example, homeowners exemplify the endowment effect, often overvaluing their properties.

“Confusing experience with the memory of it is a compelling cognitive illusion.”

Quote from Thinking, Fast and Slow by Daniel Kahneman

Combining these biases

When we combine all this with the fact that people misjudge how likely rare events are or, alternatively, give rare events too much weight when making decisions, we have the foundations of the modern insurance industry.

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How you frame risk shapes your evaluation of it.

For example, if you hear a life-saving vaccine has “a 0.001% risk of permanent disability,” your reaction is much different than it would be to the same treatment that leaves one of 100,000 individuals forever incapacitated.

Unless you didn’t notice, the two are identical.

When we take all these tendencies into account. It is hard to believe any economic theory based on the idea that people are rational actors. But making good decisions depends on paying attention to where our information comes from, understanding how it is framed, assessing our own confidence about it and gauging the validity of our data sources. We always need to check the believability of our data source and what the expert on the field’s opinion of the issue.

You might understand the relationship between our irrationality and economic impact, I would recommend you to read Misbehaving by Richard H. Thaler.

Two Selves, One Mind

The experiencing self & the remembering self

Just as two systems interact in our mind, two selves clash over the quality of our experiences. The experiencing self is the part of us that lives our life; the remembering self is the part that evaluates the experiences we have, draws lessons from them and makes decisions about the future.

“The experiencing self does not have a voice. The remembering self is sometimes wrong, but it is the one that keeps score and governs what we learn from experience, and it is the one that makes decisions.”

Quote from Thinking, Fast and Slow by Daniel Kahneman

Our remembering self’s evaluation of our life story is one part of how we judge whether we are happy. We rate our life by standards or goals we’ve set.

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The moment-to-moment assessments of our experiencing self provide the other side of our happiness.

These conclusions may conflict because they account for different aspects of reality.

“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.”

Quote from Thinking, Fast and Slow by Daniel Kahneman

Active versus a passive form of leisure

The things we pay attention to, have major implications for our mood. Active forms of leisure, like physical activity or spending time with good friends, satisfy you a lot more than the passive leisure of, for example, watching television.

Our thinking and its impact on our life

In the case of our career, we can’t necessarily change our job or disposition. But we can change what we focus on and how we spend our time. Remember that focus shapes our self-assessments. “Nothing in life is as important as you think it is when you are thinking about it.”

“Nothing in life is as important as you think it is when you are thinking about it.”

Quote from Thinking, Fast and Slow by Daniel Kahneman
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The two mental system entanglement

Our two selves are tangled with our two mental systems. System 2 constructed our remembering self, but our tendency to weigh experiences by their final moments and to favour long pleasures and short pains comes from System 1.

The relationship between our selves holds implications for philosophers and policymakers. We would make different decisions about which social, health and economic issues to address, and how to address them, depending on whether we see the perspective of the remembering self or of the experiencing self as primary.

In general, recognizing how these different mental systems work can help us to realize that the purely rational beings favoured by the economic theory are fictional. That real people need help making better judgments in their financial and life choices.

Understanding how our mind works can help us advocate for policies that take those issues into account. The opposite is also true. Because our mind doesn’t function optimally in all instances. Rules should be in place to protect people from those who would deliberately exploit their weaknesses.

Remark

The phenomenal international bestseller (2 million copies sold) will change the way you make decisions

‘A lifetime’s worth of wisdom’ Steven D. Levitt, co-author of Freakonomics
‘There have been many good books on human rationality and irrationality, but only one masterpiece. That masterpiece is Thinking, Fast and Slow’ Financial Times

Buy Now

Thinking, Fast and Slow by Daniel Kahneman is truly a remarkable book. I personally loved it, and I would rate it at 10/10.

Further reading

Read further on how to be happy from Shawn Achor’s Before Happiness and John Izzo’s The Five Thieves of Happiness.

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Author: Muhamad Aarif

A notorious book addict by night and an oil and gas executive by day. As Mark Twain said, "The man who doesn't read good books has no advantage over the man who can't read them." So, read, read, and read some more.

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