Thinking Fast and Slow

Daniel Kahneman on Human Nature

System 1 & System 2

The mind runs on two systems

System 1

This system is fast, automatic, intuitive, emotional

System 2

This system is slow, effortful, deliberate, logical

1:2

Most of daily life is run by System ___, while the System

__ is lazy and only engages when it has to

System 1

operates automatically and quickly, with

little or no effort and no sense of voluntary control

System 1

What system does this belong?

Detecting that one object is more distant than

another.

System 1

What system does this belong?

Driving a car/motorcycle in an empty road.

System 1

What system does this belong?

Reading words from a large signpost

Understanding simple sentences

System 2

allocates attention to the effortful mental

activities that demand it, including complex

computations.

System 2

What system does this belong?

Telling someone your phone number.

System 2

What system does this belong?

Checking the validity of a complex logical

argument.

System 2

What system does this belong?

Looking for a person with blonde hair, maong

jeans, and black shirt.

rational agents

Classical philosophy/economics assumes humans are

______

heuristics: not (always)

Kahneman argues that judgment is shaped by

_____, and that humans are ___ rational.

heuristic

Mental shortcuts that let us judge quickly, but

systematically bias us

The Law of Small Numbers

The Availability Heuristic

2 Examples of heuristic

The Law of Small Numbers

The belief that small samples of data can be used to

make generalizations about a larger population

The Law of Small Numbers

These examples belong to what heuristic?
anecdotes about health research

classroom exam results

generalizing report results as the whole class’

performance

The Availability Heuristic

These examples belong to what heuristic?
fear of plane crashes vs. car accidents

The Availability Heuristic

We judge frequency/probability by how easily examples

come to mind

Vivid, recent, or emotionally charged events feel more

common than they are

Causes Over Statistics

Humans prefer causal stories to statistical reasoning. We ignore base rates when given a specific, story-like description

The illlustion of Understanding - Hindsight bias

once we know an outcome, it feels like it was predictable

all along. We construct coherent narratives about the past that

overstate how foreseeable events were

The Illusion of Validity & Expert Intuition

Confidence in judgment is not correlated with accuracy

Experts (and non-experts) often overrate their own

predictive ability

expert intuition works only in stable, rule-

governed environments (chess, firefighting)

What ar the exception for illustion of validity and expert intuition?

Utility maximization theory

people are rational utility-maximizers

Prospect theory

People evaluate outcomes as gains and losses relative to

a reference point, not in absolute terms

Loss aversion

losses hurt roughly twice as much as

equivalent gains feel good

The Endowment Effect

We overvalue things simply because we own them

We're more sensitive to potential losses than potential

gains, and this shapes risk-taking behavior

True

True or false?

Kahneman doesn't claim we're irrational but that

"rationality” needs to be redefined with the constraints

we have listed in this lesson and even before this in

mind.