I have learnt many new things from the brilliant book by Daniel Kahneman, though I’ve found it hard to read. This post is to sum up my key takeaways.
There are two ways how we think. Decisions made can be based on the fast, automatic thought process (System 1) or on slow, more rational and logical thinking (System 2).
There are benefits of both systems, the problem is when we use System 1 where System 2 would be more appropriate to be used.
This is where we arrive to biases.
We talk about anchoring when we use an initial piece of information to make subsequent judgments for making a decision.
We talk about availability when make judgments about the probability of events based on how easy it is to think of examples. People overestimate the probabilities of unlikely events and people overweight unlikely events in their decisions.
We talk about emotional framing when we face the fact that losses evokes stronger negative feelings than costs. That is why it is more convincing explaining to someone what they are risking losing, instead of what they could possibly gain.
We talk about sunk cost fallacy when we let our past decisions influence our present decisions. Past should not effect what is good for us now.
I loved reading about planning fallacy and about expert intuition.
When we make project/product plans, come up with estimations on how long it takes, how much it costs and what benefits we can gain. Actually, plans rarely meets reality. We tend to overestimate benefits and underestimate costs. It turned out this phenomenon has name, which is planning fallacy.
What Kahneman says about expert intuition is that experts are often overconfident which can be explained by the unrecognized limits of professional skills.
TL;DR System 1 is not educable. The way to block errors that originate in System 1 is recognize the signs that you are in a cognitive minefield, slow down, and ask for reinforcement from System 2. Organizations are better than individuals when it comes to avoiding errors, because they naturally think more slowly and have the power to impose orderly procedures.
And because Hungarians are everywhere.
Kahneman mentions three Hungarians in this book. I have collected the phrases:
The psychologist Mihaly Csikszentmihalyi (pronounced six-cent-mihaly) has done more than anyone else to study this state of effortless attending, and the name he proposed for it, flow, has become part of the language.
* The pronounciation is wrong. It would rather be [chicks-sent-me-high]
Substituting one question for another can be a good strategy for solving difficult problems, and George Pólya included substitution in his classic How to Solve It: “If you can’t solve a problem, then there is an easier problem you can solve: find it.”
The mathematician John von Neumann, one of the giant intellectual figures of the twentieth century, and the economist Oskar Morgenstern had derived their theory of rational choice between gambles from a few axioms.