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Thinking, Fast and Slow
By Daniel Kahneman
Farrar, Straus and Giroux; 499 pp; $30
For the last decade or so a band of scholars has been trying to cast off the long-accepted “rational agent” theory of economic behavior—the one that says that people, in their economic lives, behave like calculating robots, making rational decisions when they buy a stock, take out a mortgage, or go to the track. These scholars have offered a trove of evidence that people, far from being the rational agents of textbook lore, are often inconsistent, emotional, and biased. Perhaps tellingly, the pioneers of this field were not economists. Daniel Kahneman and Amos Tversky were Israeli psychologists who noticed that real people often do not make decisions as economists say they do. Tversky died in 1996; six years later, Kahneman won the Nobel Prize for economics.
Thinking, Fast and Slow, Kahneman’s new and most accessible book, contains much that is familiar to those who have followed this debate within the world of economics, but it also has a lot to say about how we think, react, and reach—rather, jump to—conclusions in all spheres. What most interests Kahneman are the predictable ways that errors of judgment occur.
Synthesizing decades of his research, as well as that of colleagues, Kahneman lays out an architecture of human decision-making—a map of the mind that resembles a finely tuned machine with, alas, some notable trapdoors and faulty wiring.
Behavioralists, Kahneman included, have been cataloging people’s systematic mistakes and nonlogical patterns for years. A few of the examples he cites: 1. Framing. Test subjects are more likely to opt for surgery if told that the “survival” rate is 90 percent, rather than that the mortality rate is 10 percent. 2. The sunk-cost fallacy. People seek to avoid feelings of regret; thus, they invest more money and time in a project with dubious results rather than give it up and admit they were wrong. 3. Loss aversion. In experiments, most subjects would prefer to receive a sure $46 than have a 50 percent chance of making $100. A rational agent would take the bet. Remarkably, and for similar reasons, golfers putt better when missing would leave them a stroke behind.
As compelling as these examples are—repeatedly, we recognize our own biases—Kahneman’s greater achievement is to build a framework for how, or why, the mind reasons as it does. You may feel a spasm of doubt, as I did, when first introduced to his central contrivance—using two fictional “characters,” which he refers to as System 1 and System 2. Suspend your doubts for just a moment.
System 2 is your conscious, thinking mind. We conceive of this active consciousness as the principal actor, the “decider” in our lives. System 2 thinks slowly; it considers, evaluates, reasons. Its work requires mental effort—multiplying 24 by 17 or turning left at a busy intersection. We attribute most of our opinions and decisions to this thinking, reasonable fellow.
For Kahneman, however, the main protagonist is System 1. This is the agent of our automatic and effortless mental responses. System 1 can add single-digit numbers and fill in the phrase “bread and —.” It is equipped with a nuanced picture of the world, the product of retained memory and learned patterns of association (“Florida/old people”) that enable it to spew out a stream of reactions, judgments, opinions. System 1 can detect a note of anger in a voice on the telephone; it forms snap judgments about those we meet, Presidential candidates, investments that we might be considering.
The flaw in this remarkable machine is that System 1 works with as little or as much information as it has. If it can’t answer the question, “Is Ford stock a good investment?” it supplies an answer based on related but not really relevant data, such as whether you like Ford’s cars.
