Thinking fast and slow

Daniel Kahneman 2011Winner of 2002 Nobel prize for economics

View of rationality

• 1970s believed that people are generally rational

• Strong emotions cause departure from rationality

Since then behavioural psychologists and economists have developed a different view based on an analysis of how we think…

System 1 thinking

How does this woman feel?

System 2 thinking

17 x 24 =

• Deliberate• Effortful• Orderly

System 1 – fast thinking

• Detect one object is more distant than another

• Orient the source of a sudden sound• Complete the phrase “bread and …”• Make a “disgust face” when shown a horrible

picture• Detect hostility in a voice• Answer to 2 + 2 =?

• Read words on large billboards• Drive a car on an empty road• Find a strong move in chess (if you are a chess

master)• Understand simple sentences• Recognise that a “meek and tidy soul with a

passion for detail” resembles an occupational stereotype.

System 1 – fast thinking

System 2 – slow thinking

• Brace for the starter gun in a race• Focus attention on the clowns in a circus• Look for a woman with white hair• Search memory to identify a surprising sound• Maintain a faster walking speed than is natural

for you• Monitor the appropriateness of you behaviour

in a social situation

• Count the occurrences of the letter a in a page of text

• Tell someone your phone number• Park in a narrow space (for most people)• Compare two washing machines for overall

value• Fill out a tax form• Check the validity of a complex logical

argument

System 2 – slow thinking

System 1

System 2

Automatically generates suggestionsIntuitionsImpulses

Usually accepts suggestions

Both active when awake

Voluntary actionsBelief

System 1 System 2

• Tries to make sense• Is polite

• Pays attention when driving

Minimise effort and optimise performance

Notices anomalies

System 1Generally very goodShort term predictions accurateInitial reactions swift and appropriate

ButHas systemic biasesDoesn’t understand logic and statisticsCannot be turned off

System 2 (I) knows they are the same length

System 1 still sees the top line longer

Attention & Effort

System 2 is the supporting actor who thinks he’s the hero

It’s operations are effortful and it is lazy

System 2 = hard work

• Self control• Cognitive effort• Consumes glucose• Ego depletion

Ego depletion consequences

8 parole judges reviewing applications for parole6 minutes eachDefault is denial35% approved65% approved after a meal0% before next meal

Ego depletion consequences

When System 2 is tired:

• Supervisory function weak

• More impulsiveImpatientKeen for immediate gratification

A bat and a ball cost $1.10The bat costs one dollar more than the ballHow much does the bat cost?

What number comes to mind?

All roses are flowersSome flowers fade quicklyTherefore some roses fade quickly

True or false?

vomit

The Associative Machine

• Experience unpleasant images and memories• face twists slightly in disgust• heart rate increases• hair on arms rises a little• sweat glands activatedAttentuated version of how you would react to

actual event, beyond your control• May have a temporary aversion to bananas

The Associative Machine

• Spreading cascade of activity – memories, emotions, facial expressions

• Coherent• Each element is connected • Each supports and strengthens the others• Simultaneous and immediate• Self reinforcing cognitive, emotional and

physical pattern

• Everything that happens around you effects the state of your memory

• depending what you have just heard and seen you are ready to recognise and respond to associated objects and concepts

Priming

SO _P

The Florida Effect

• Students 18 – 25 NY university• Assemble 4 word sentences from 5 wordsEg: “finds he it yellow instantly”

One group scrambled sentences includeFlorida, forgetful, old, grey, wrinkle

Asked to walk to another room…

Priming

• Tests done while subjects are smiling or frowning• Nodding or shaking head• Cartoons funnier• Upsetting pics worse

Priming

Arizona ballot to increase school funding

Priming

• Support greater when in a school• exposure to pictures of classrooms & school

lockers increased support • bigger than parents

Disbelief is not an option

• These findings are true

• They are true of YOU

Cognitive Ease

Repeated experience Feels familiar

Ease

Good mood

Primed idea

Clear display Feels effortless

Feels good

Feels true

Anything that makes associations easier will bias beliefs

Repetition makes people believe falsehood

Familiarity is hard to distinguish from the truth

If you want people to believe something

• Maximise contrast between characters and background

• Text in bright blue or red• Simple language• Put in verse• Cite source easy to pronounce

System 1 cluster System 2 cluster

Good moodIntuitionCreativitygullibility

SadnessVigilanceSuspicionAnalysis

approacheffort

Jumping to Conclusions

What do these three have in common?

Not aware of ambiguityBank could have been river bank

System 1Neglect of Ambiguity

• Not aware of ambiguity• Uncertainty and doubt belong to System 2• When system 2 is busy or tired you are more

likely to believe almost anything

The Halo Effect

If you like one thing about a person you have tendency to like everything (and vice versa)

The Halo Effect

• System 2 looks for confirming evidence• We seek data compatible with our beliefs• Without evidence we attribute good qualities which reinforce our view

What do you think of Alan & Ben?

Alan: intelligent, industrious, impulsive, critical, stubborn, envious.

Ben: envious, stubborn, critical, impulsive, industrious, intelligent.

Critical and stubborn are ambiguousWe associate them with the first word

What you see is all there is• System 1 constructs the best possible story

incorporating the ideas that have been activated but does not (cannot) allow for info it doesn’t have.

Will Mindik be a good teacher? She is intelligent and strong…

Next adjectives could be corrupt & cruelWe don’t question or analyse, just produce best story

available

Coherence seeking system 1 + lazy system 2

• We are rarely stumped• Have intuitive feelings & opinions about

everything• Like or dislike on sight• Trust or distrust on sight

Lazy System 2 endorses our intuitive beliefs

“What you see is all you get”explains many biases

Overconfidence• Confidence depends on the quality of the

story you can tell from what you see/hear• System 1 fails to allow for missing or critical

evidence

“What you see is all you get”explains many biases

Framing effects:Odds of survival are 90%Death within a month of surgery is

10%

Meat: 90% fat freeMeat: 10% fat

Target question

• How much emotion do I feel when I think of dying dolphins

SubstitutionHeuristic question

• How much would you contribute to save an endangered species

• How happy are you with your life these days?

• How popular will the president be six months from now

• What is my mood right now?

• How popular is the president now?

Substitution

• How should financial advisors who prey on the elderly be punished

• How much anger do I feel when thinking of financial predators

Target question Heuristic question

• This woman is running for the primary. How far will she go in politics?

• Does this woman look like a political winner?

Emotions and beliefs

• Our likes and dislikes determine our beliefsie: our political preferences and which arguments we find more compelling:

Red meat; nuclear power; global warming; motorcycles; irradiated food; tattoos.

If you like these things you think the risks are low and vice versa.

System 2 acts as biased lawyer

• Searches for information consistent with existing beliefs

• Aplogist not critic• Fights in the court of public opinion to

persuade others of system 1’s view

The Law of small numbers

• Study of the incidence of kidney cancer in 3141 counties in the USA

The counties in which the incidence of kidney cancer is lowest are mostly rural, sparsely populated, and located in traditionally Republican states in the Midwest, the South and the West.

What do you make of this?Clean living, no pollution, fresh food without additives

The law of small numbers

• Study of the incidence of kidney cancer in 3141 counties in the USA

The counties in which the incidence of kidney cancer is highest are mostly rural, sparsely populated, and located in traditionally Republican states in the Midwest, the South and the West.

What do you make of this?No access to medical care, high fat diet, tobacco, alcohol

The law of small numbers

• The key factor is not Republican or rural it is sparsely populated.

• Small samples yield extreme outcomes• System 1 very bad at stats• System 1 believes small samples closely

resemble the population from which they are drawn.

System 1

• Exaggerates consistency• Suppresses ambiguity• Seeks patterns• Believes in a coherent world• Believes in causality

Many facts of the world are due to Chance not causality

Anchoring

Built to stop at 10 & 65

Anchoring

• Is the percentage of African nations among the UN members larger or smaller than the number you just wrote?

• What is your best guess of the percentage of African nations in the UN?

10 = 25%65=45%

Anchoring

Annual donation “to save 50000 offshore Pacific Coast seabirds from small offshore oil spills until ways are found or prevent spills or require tanker owners to pay for the operation.”

No anchor ($65)Would you be willing to donate $5? ($20)Would you be willing to donate $400? ($143)

Anchoring

• House market• Shops• Political campaigns

Assume any number has an anchoring effect and mobilise system 2 to combat it.

AvailabilityAsk people to estimate the frequency of an

activity:What percentage of couples divorce after 60?How many poisonous snakes are there in SA?

We judge frequency by the ease with which examples come to mind.

When it is difficult to find examples System 2 becomes engaged and content receives attention.

Availability

What comes easily to mind?Stories with big media exposure:

• Hollywood divorces• Politicians sex scandals• Plane crashes• Tsunamis and storms

Availability

What comes easily to mind?Personal experiences:

• A bad judicial experience– Undermines faith in judicial experience

• Being victim of a mugging– The world seems a dangerous place

• Vivid examples

Availability

Conditions in which people go with the flow:• When engaged in an effortful task at the same

time• when in a good mood after happy memory• If they score low on a depression scale• If they are knowledgeable novices in contrast

to true experts• When they score high on faith in intuition

Availability

If they are (or are made to feel) powerful

“I don’t spend a lot of time taking polls around the world to tell me what I think is the right way to act. I’ve just got to know how I feel”

George W Bush, November 2002.

Availability, Affect & RiskPublic perceptions of risk:• Strokes cause almost twice as many deaths as

all accidents combined, but 80% of respondents judged accidental deaths to be more likely.

• Tornados were seen as more frequent killers than asthma, although the latter causes 20 times more deaths.

• Death by lightning judged less likely than death from botulism even though it is 52 times more frequent.

Availability, Affect & Risk

• Death by disease is 18 times as likely as accidental death, but the two were judged equally likely.

• Death by accident was judged to be more than 300 times more likely than death by diabetes, but the true ratio is 1:4.

Estimates warped by media coverage which is biased to novelty and poignancy.

Availability cascade

• Media reports a relatively minor event.• Public reacts• Danger increasingly exaggerated in media• Public panic• Scientists who try to dampen fear attract little

attention mostly hostile• Issue becomes politically important• Unnecessary expensive legislation passed

Availability cascade

Terrorists most significant practitioners:

Casualities are small – even in Israel much lower than traffic deaths.

Cost of the war on terror.

Linda: Less is more

Linda is thirty-one years old, single, outspoken, and very bright. She majored in philosophy. As a student she was deeply concerned with issues of discrimination and social justice, and also participated in antinuclear demonstrations.

Linda: Less is more

• Linda is a teacher in an elementary school.• Linda works in a book store & takes yoga.• Linda is active in the feminist movement.• Linda is a psychiatric social worker.• Linda is a bank teller.• Linda is an insurance salesperson.• Linda is a bank teller and is active in the feminist

movement.Rank according to which most likely

Linda: Less is moreRan experiment with nothing between bank teller and feminist

bank teller• Stanford graduate school of business graduates in probability,

decision making & stats - 85% ranked feminist bank teller higher.

In desperation:Which alternative is more probable?Linda is a bank teller.Linda is a bank teller and active in the feminist movement.85 – 90% of students in major universities rated feminist higher

Linda: Less is more

“a little homunculus in my head continues to jump up and down, shouting at me – ‘but she can’t just be a bank teller; read the description.’”

Stephen Jay Gould

The fallacy is attractive even when you recognise it.

Linda: Less is more

System 1’s uncritical substitution of plausibility for probability.

Which is more probable:Jane is a teacher.Jane is a teacher and walks to work.

Answer obvious because no competing intuition.

For economists and decision theorists:(not Austrian school)rationality = internal consistency

logical coherence

This definition demands rules of logic the human mind cannot implement.

Behavioural economists:believe in freedom – but that it has a cost:

Individuals who make bad choices and society which feels obliged to help them

Libertarian Paternalism

How do you help people make good decisions without curtailing their freedom?

Nudge them to make decisions in their long term interests.

Rates of Organ Donation

Nearly 100% Austria 12% German 86% Sweden 4% Denmark

Why the difference?Opt in or opt out

Why the huge difference?• Default option perceived as normal choice• Deviating is an act of commission, requires

deliberation, responsibilityBusinesses take advantage of system 2 laziness

Hence contracts long and in small print

Nudge• Pension scheme default option• Contracts in large print and simple language

In Conclusion• We think we are System 2• System 2 articulates judgments and makes

choices but also endorses or rationalises ideas and feelings from System 1

• System 2 is important but limited by its abilities and the knowledge to which it has access.

• System 1 is the origin of much we do wrong but also most of what we do right.