Thinking, Fast and Slow

Feb 20, 2012

I read the book by economist Daniel Kahneman, “Thinking: Fast and Slow”, that summarizes his life’s research in the fields of behavioral economics and decision-making.

I’m not sure where I got the reference from, but it may have been Bruce Schneier’s blog or some other security-related resource. How people think has a lot to do with how they make good or poor security- and privacy-related choices—which these days includes pretty much everything you do online.

Behavioral economics and statistical methods are all the buzzwords in the Valley these days. People like Kahneman have been working on the topic for decades before it became cool, and the work is now making it into mainstream applications. Just this week, there’s a story about how Target uses statistically-driven insights to lure new shoppers. Kahneman’s book refers to “Nudge” that contains many other stories about the applications. Some followups being implemented in the real world are that if some food says it’s “90% fat free,” they’re thinking about legislation that will also put “10% fat” close to this label. Kahneman shows that many decisions, including purchase decisions, are influenced simply by how the proposal is framed, and he discusses why “90% fat free” and “10% fat” are two very different things.

More interesting than any individual application to me is the whole system of thinking that informs them. Kahneman summarizes it in these three pairs.

Two systems

People think with two systems, System 1 and System 2. (It is an abstraction. There are no specific parts of the brain that correspond to these.)

System 1 can be thought of as “intuition” or “automatic mode”. It’s how we do most everyday practical decisions: without much conscious thinking. It is effortless and automatic and most of the time it works just fine. But Kahneman shows how it uses many heuristics that can lead to poor decisions, such as representativeness, loss avoidance, framing, anchoring, and What You See Is All There Is (WYSIATI). It sees causality where there is none, and it absolutely cannot do statistical or higher-level reasoning.

For example, if you roll a regular six-faced dice six times in a row, which outcome is more probable: 111111 or 521534? Most people say it’s the latter because it looks more random. Statistically, they have equal probability.

System 2 is who we think we are: it is the rational self that can engage in conscious thought, fix mistakes done by System 1, reprogram it to an extent, and use concepts like statistical reasoning for more complex questions. Most of the time, people think they make most decisions with System 2, but Kahneman shows that this is false, and System 2 is often lazy and just blindly trusts System 1.

Econs and Humans

These are two personality types where Econs correspond to System 2 and Humans correspond to System 1. Most economic theory until recently worked just with Econs and the main premise was that people are rational and make conscious choices to maximize their utility. The Human and System 1 side of affairs was simply not considered. People like Kahneman have advanced the field and brought Humans and System 1 more into sight of economists, not staying just in the field of psychology.

Two selves

Our two selves are the experiencing self and the remembering self. The experiencing self is the one that does most of the actual living and going through experiences, while the remembering self is able to look back on experiences and construct and recall memories. When you go to the dentist, the experiencing self goes through all the pain in the moment, but does not retain much. The remembering self is the one that can think back to experience and consider how painful it actually was, relative to the benefit received. Thinking about these two would be useful for many kinds of policymaking and service design.

I feel this book was a good summary of a great researcher’s work and I know a lot more about behavioral economics and decision-making now. Next, even though its reviews are somewhat mixed on Amazon, I think I’ll still read “Nudge.”