Reading notes: Thinking Fast and Slow

A summary of all the conversational examples of biases and fallacies covered in Kahnemann's "Thinking Fast and Slow". This does not replace reading the book, which I highly recommend. I've chosen to only extract the conversational examples, as these are easiest to review for memorization purposes, and are closest to real world problems that may invoke associations with the content from the book.

Least Effort

• I won't try to solve this while driving, it requires mental effort
• She was thinking of something else when the meeting was set, and didn't hear you
• What came to mind was an intuition, I need to search my memory deliberately

Control

• She didn't struggle, she was in flow
• His ego was depleted after a long day of meeting, so he regressed to system one thinking
• She tends to say the first thing that comes to her mind, she probably also has problems delaying gratification

Priming

• The sight of all people in uniforms does not prime creativity
• They were primed to find flaws, and this is exactly what they found
• His system one constructed a story and his system two believed it
• I made myself smile and am actually feeling better

Cognitive Ease

• Lets not dismiss the plan because the font is hard to read
• The must be finding to believe it because it was repeated often
• Familiarity breeds liking (exposure effect)
• Good mood, system 2 is weaker than usual, should be careful

Norms and Causes

• When the second applicant also turned out to be a friend, I wasn't surprised. Little repetetion is needed.
• When evaluating the react to the products, we should focus on the entire range, not the average
• She can't accept that she was unlucky, she needs a causal story

Jumping to Conclusions

• She knows nothing about this persons management skills, just has a halo effect based on his good presentation
• Let's make separate judgements on the issue before discussing
• The made this decision on the good report by one person

Judgements

• He looks the part for a leadership role (automatic assessments based on looks)
• The punishment of a crime won't feel just unless it's intensity matches the crime, just like we can match the brightness of light to the loudness of a sound (intensity-matching)
• He was asked whether the company was financially sound, but he couldn't forget that he likes their product (mental shotgun)

Substitution and Heuristics

• Do we still remember the question we are trying to answer or have we substituted an easier one?
• The question we face is whether this candidate can succeed. The question we answer is whether she interviews well.
• He likes the project so he thinks the costs are low and benefits high, a typical example of the affect heuristic.
• Last years performance as a heuristic to predict the value of the firm several years from now. Is this an adequate heuristic or are we missing critical information?

Law of Small Numbers

• Yes the studio had 3 successful films since the new CEO took over, but it is too early to determine if it is the CEOs achievement.
• I won't believe that the new trader is a genius before talking to a statistician who can confirm the likelihood of his success being a chance event.
• The sample of observations is too small to make any inferences.
• Keep results of experiments secret until we have a sufficiently large sample.

Anchors

• The firm we want to acquire sent us their business plan with the revenue they expect. Do not let this influence your thinking.
• Plans are best-case scenarios. Let's avoid anchoring on plans.
• Our aim in this negotiation is to get them anchored on this number.
• Let us be clear that if that is their proposal, the negotiations are over. We do not want to start there.

Availability

• Because of the coincidence of two planes crashing last month, she now prefers the train: availability bias.
• He underestimates the risk of indoor pollution because there are few media stories about them.

Emotion and Risk

• She is raving about an innovation that has only benefits and no costs. I suspect the affect heuristic.
• Availability cascade: a non-event that is inflated by the media until critical mass

Representativeness

• The lawn is well trimmed, the receptionist looks competent. This does not mean this is a good company.
• This startup looks as if it could not fail, but the base-rate of success in startups is low. How much good evidence is there. When the evidence is weak, one should stick with the base-rate.

Less is More

• They constructed a very complicated scenario and insist on calling it highly probable.
• They added a cheap gift to an expensive product and made the whole deal less attractive as a result.
• He looked at the case in isolation, single evaluation, system 1 dominated his response. Always use comparisons.
• A direct comparison makes people more logical, usually, but sometimes the intuitive answer is right.

Causes and Statistics

• We can't assume that they'll learn anything from mere statistics. Let's show them some representative individual cases to influence their system one.
• No need to worry about this statistic information being ignored, on the contrary, it will immediately be used to feed a stereotype.

Regression to the Mean

• She says experience has taught her that criticism is more effective than praise, but it's all due to regression.
• If the second interview is bad, the first could also have been unusually good.
• We shouldn't be surprised that the best candidates often fail out expectations.

Prediction

• Startup has good concept, but there's a lot of room for regression until market fit.
• Let's regress our intuitive prediction towards the mean.
• Sample size is very important.

Hindsight

• Could not have known in advance even if it seems obvious.
• He's learning too much from this success story. Narrative fallacy.
• Outcome bias part hindsight, part halo effect

Illusory Skill

• He knows that the record indicates that the development of this illness is mostly unpredictable. How can he be so confident in this case. Illusion of validity.
• She has a conherent story that explains all she knows, and the coherence makes her feel good.

Judgements vs Formulas

• Whenever we can replace human judgement by a formula, we should consider it.
• He thinks his judgements are complex, but a simple combinations of scores could probably do better.
• Let's decide in advance what weight we give the data of the candidates past performance, otherwise we will give too much weight to our impression from the interviews.

Expert Intuition

• How much expertise does she have in this task. How much practice?
• Are startups sufficiently regular to support an intuition that goes above the base rates?
• Subjective confidence is a poor indicator of the effectiveness of a judgement.
• Has he really had opportunity to learn? How clear and how quick was the feedback he got on his judgements?

Outside View

• Forget about what happens in your case and think about other cases.
• She's a victim of Planning Fallacy. She's assuming a best-case scenario, but there are too many different ways for the plan to fail.
• In a specific case, look at the general case instead, derive a baseline, then add back the details and see how they change the estimate.

Sunk Cost

• Avoid taking a different path because you are already on another one.
• Making an investment because you do not want to admit failure.

Optimism

• Illusion of control because they underestimates the obstacles.
• Competitor neglect.
• Pre-mortem sessions: coming up with a threat that might have been neglected.

Bernoulli's Errors

• He was very happy with a 20 thousand bonus 3 years ago, but his salary has risen since then, so he'll need a higher bonus to achieve the same utiltiy.
• Both candidates will accept the salary we are offering, but they will have differing satisfaction because their reference point is different.

Prospect Theory

• He suffers from extreme loss aversion, which makes him turn down very favorable opportunities.
• High response to trivial losses and gains without considering the bigger ones. See Bike Shedding.

Endowment Effect

• She didn't care which job she got, but accepting one made her reluctant to consider the other.
• Losses loom larger than gains.
• Treating money spent as money lost.

Asymmetry of Losses

• This reform will not pass: those who stand to lose will fight harder than those who stand to gain.
• Each of them think the others concessions are less painful.
• If they pie is expanding, you're not allocating losses, you're allocating gains.
• Entitlement to current terms in the face wider change (e.g. housing prices to rent prices)

Fourfold Pattern

• He is tempted to settle this frivolous claim to avoid a freak loss. That's overrating of small proabilities.
• Perceived value functions are too steep at the edges and too flat in the middle (even more for losses). We overvalue changes in low probabilities and undervalue changes in medium probability. Eg. we assume 5%→10% much more valuable than 55→60%, even if it is the same change.
• They will not cut their losses as long as there is a chance of breaking even. Risk seeking in the losses.
• They know the risk of a gas explotion is miniscule, but they want to sleep in peace.

Rare Events

• We should focus on a single scenario or we will overestimate it's probability. Let's think of multiple alternatives and make their probability add up to a 100%.
• They want people to be worried by the risk. That's why they describe it as 1 death per 1000. They're counting on Denominator Neglect

Risk Policy

• Tell her to think like a trader. You win a few, you lose a few.
• Don't evaluate your portfolio too often. We are too loss averse to make sensible decisions in the face of daily price fluctuations.
• They never buy extended warranties. That's their risk policy.
• Remember to take enough risks.

Keeping Score

• He has separate mental accounts for cash and credit purchases. I constantly remind him that money is money.
• We are holding on to that stock just to avoid closing our mental account on a loss. Disposition Effect.
• Do not put too much worth on regret. You will have some.
• We had a good meal at that restaurant, and we never try anything else to avoid regret.
• Taboo tradeoff: taking the cheaper thing after being shown the safest option (e.g. in security products)

Reversals

• The BTU units meant nothing to me until how much air conditioning units vary. Joint Evaluation was essential.
• You say this was an outstanding speach because you compared it to her other speeches.
• Broadening the frame makes decisions more reasonable.

Frames and Reality

• They will feel better about what happened if they manage to frame the outcome in terms of how much money they gained instead of how much money they lost.
• Let's change our reference point. Image we did not own it. How much would we think it was worth?
• Charge the loss to your mental account of general revenue. You will feel better.
• Opting out is better than opting in if you want lots of users.

Two Selves

• You are thinking of your failed marriage entirely from the perspective of the remembering self. The fact that it ended badly did not mean it was all bad.
• This is a bad case of duration neglect: you are giving the good and the bad part of experience an equal weight, even though the good parted lasted 10 time as long.

Life as a Story

• He is desperately trying to protect his narrative of a story of a life of integrity, which is endangered by the latest episode.
• The length he was willing to go to for a one-night encounter is a total example of Duration Neglect
• You seem to be dedicating your entire vacation to the construction of memories. Perhaps you should put the camera away and enjoy the moment, even if it is not very memorable.
• She is an Alzheimers patient. She no longer maintains a narrative of her life, but her experiencing self is still sensitive to beauty and gentleness.

Experienced Well-Being

• The objective of policy should be about reducing human suffering. We aim for a lower "you"-index in society. Dealing with depression and extreme poverty should be a top priority.
• The easiest way to increase happiness is to control your use of time. Can you find more time to do the things you enjoy doing?
• Beyond the satiation level of income, you can buy more pleasure experiences, but you will lose some of your ability to enjoy the less expensive ones.

Thinking about life

• Buying a larger house might not make us happier in the long term. We could be suffering from Focusing Illusion
• She thought that buying a fancy car would make her happier, but it turned out be an error of Affective Forecasting
• His car broke down in the morning and he is in a foul mood. This is not a good time to ask him about his job satisfaction.
• He has chosen to split his time between two cities. Probably a serious case of Misswanting

System One

• Takes control when system two is tired.
• Reacts to immediate stimuli before system two can evaluate.
• Generates impressions, feelings and inclinations. When endorsed by system 2 these become believes, attitudes, and intentions.
• Operates automatically and quickly with little to no effort with no sense of voluntary control.
• Can be programmed by system 2 to mobilize attention when a particular pattern is detected: Search(cognitive).
• Executes skilled responses and intuition after adequate training.
• Creates a coherent pattern of activated ideas in associative memory
• Links Cognitive Ease to illusions of truth, pleasant feeling, and reduced vigilance.
• Distinguishes surprising from normal.
• Infers and invents causes and intentions.
• Neglects ambiguity and surpresses doubt.
• Is biased to believe and confirm.
• Exaggerates emotional consistency.
• Focuses on existing evidence and ignores absent evidence: What you see is all there is.
• Generates a limited set of basic assessments.
• Represents sets by norms and prototypes. Does not integrate.
• Matches intensities across scales, for examples size to loudness
• Computes more than intended: Mental Shotgun
• Sometimes substitutes a question with an easier one: Heuristics
• Is more sensitive to changes than to states: Prospect Theory
• Shows diminishing sensitivity to large quantities: Psychophysics
• Frames decision problems narrowly, in isolation