Mindmap-Book SummaryThinkingFastSlow

Mindmap-Book SummaryThinkingFastSlow

• About Thinking Fast and Slow
  • Date Read: December 2014
  • Author: Daniel Kahneman
  • ISBN: 978-0374533557
  • 512 pages
  • MyRating: 5 Stars
• Thinking Fast and Slow
  • Introduction
    • aim for watercooler conversations

      improve the ability toidentify and understand errors of judgment and choice in others andeventually in ourselves by providing a richer and more precise language todiscuss them In at least some cases an accurate diagnosis may suggestan intervention to limit the damage that bad judgments and choices oftencause

      Origins

      Are peoplegood intuitive statisticians?

      We already knew that people are goodintuitive grammarians: at age four a child effortlessly conforms to the rulesof grammar as she speaks although she has no idea that such rules exist

      Do people have a similar intuitive feel for the basic principles of statistics?

      We had concluded in the seminarthat our own intuitions were deficient

      In spite of years of teaching andusing statistics we had not developed an intuitive sense of the reliability ofstatistical results observed in small samples

      Even statisticians were not good intuitive statisticians

      Ourresearch was a conversation

      we invented questions and jointlyexamined our intuitive answers

      Each question was a small experiment and we carried out many experiments in a single day

      We were notseriously looking for the correct answer to the statistical questions weposed

      Our aim was to identify and analyze the intuitive answer the first1 that came to mind the 1 we were tempted to make even when weknew it to be wrong

      We believed—correctly as it happened—that anyintuition that the 2 of us shared would be shared by many other peopleas well and that it would be easy to demonstrate its effects on judgments

      reliance on the ease of memory

      adultery ismore common among politicians than among physicians or lawyers

      Consider the letter K Is K more likely to appear as the first letter in a word OR as thethird letter?

      Social scientists in the s broadlyaccepted 2 ideas about human nature

      First people are generallyrational and their thinking is normally sound

      Second emotions such asfear affection and hatred explain most of the occasions on which peopledepart from rationality

      Our article challenged both assumptions withoutdiscussing them directly

      We documented systematic errors in the thinkingof normal people and we traced these errors to the design of themachinery of cognition rather than to the corruption of thought by emotion

      students of policy have noted that the availability heuristichelps explain why some issues are highly salient in the public’s mind whileothers are neglected

      People tend to assess the relative importance ofissues by the ease with which they are retrieved from memory—and this islargely determined by the extent of coverage in the media

      Frequentlymenti1d topics populate the mind even as others slip away fromawareness

      In turn what the media choose to report corresponds to theirview of what is currently on the public’s mind

  • Where we are now
  • What Comes Next
• Part I 2 Systems
  • Chapter 01 The Characters of the Story
    • 2 Systems
    • System 1
      • System 1 operates automatically and quickly with little or no effortand no sense of voluntary control

        examples of the automaticactivities that are attributed to System 1

        Detect that 1 object is more distant than another

        Orient to 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 + = ?

        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

        Recognize that a “meek and tidy soul with a passion for detail”resembles an occupational stereotype

        All these mental events belong with the angry woman—they occurautomatically and require little or no effort

        The capabilities of System 1include innate skills that we share with other animals

        We are bornprepared to perceive the world around us recognize objects orientattention avoid losses and fear spiders

        The knowledge

        The knowledge is stored in memory and accessed withoutintention and without effort

        mental actions in the list are completely involuntary

        Youcannot refrain from understanding simple sentences in your own languageor from orienting to a loud unexpected sound nor can you prevent yourselffrom knowing that + = or from thinking of Paris when the capital ofFrance is menti1d

        The control of attentionis shared by the 2 systems

        You may be able to resist turning towardthe source of a loud and offensive comment at a crowded party but even ifyour head does not move your attention is initially directed to it at least fora while However attention can be moved away from an unwanted focus primarily by focusing intently on another target

    • System 2
      • System 2 allocates attention to the effortful mental activities thatdemand it including complex computations The operations ofSystem 2 are often associated with the subjective experience ofagency choice and concentration

        The highly diverse operations of System 2 have 1 feature in common:they require attention and are disrupted when attention is drawn away

        Brace for the starter gun in a race

        Focus attention on the clowns in the circus

        Focus on the voice of a particular person in a crowded and noisyroom

        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 your behavior in a social situation

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

        Tell some1 your ph1 number

        Park in a narrow space (for most people except garage attendants)

        Compare 2 washing machines for overall value

        Fill out a tax form

        Check the validity of a complex logical argument

        In all these situations you must pay attention and you will perform less well or not at all if you are not ready or if your attention is directedinappropriately

        System 2 has some ability to change the way System 1works by programming the normally automatic functions of attention andmemory

        When waiting for a relative at a busy train station for example you can set yourself at will to look for a white haired woman or a beardedman and thereby increase the likelihood of detecting your relative from adistance

        You can set your memory to search for capital cities that startwith N or for French existentialist novels

        when you rent a car atLondon’s Heathrow Airport the attendant will probably remind you that “wedrive on the left side of the road over here

        In all these cases you areasked to do something that does not come naturally and you will find thatthe consistent maintenance of a set requires continuous exertion of at leastsome effort

        “pay attention”

        The often used phrase “pay attention” is apt: you dispose of a limitedbudget of attention that you can allocate to activities and if you try toi>Cyou try tgo beyond your budget you will fail

        It is the mark of effortfulactivities that they interfere with each other which is why it is difficult orimpossible to conduct several at once

        You could not compute the productof × while making a left turn into dense traffic and you certainlyshould not try

        You can do several things at once but only if they are easyand undemanding

        You are probably safe carrying on a conversation with apassenger while driving on an empty highway and many parents havediscovered perhaps with some guilt that they can read a story to a childwhile thinking of something else

        Intense focusing on a task can make people effectively blind even tostimuli that normally attract attention

        Seeing and orienting are automatic functions ofSystem 1 but they depend on the allocation of some attention to therelevant stimulu

        Invisible Gorilla The gorilla study illustrates 2 important facts about our minds

        • we can be blind to theobvious
        • we are also blind to our blindness

        Plot Synopsis

        The interaction of the 2 systems is a recurrent theme of the book and abrief synopsis of the plot is in order In the story I will tell Systems and are both active whenever we are awake

        System 1 runs automatically andSystem 2 is normally in a comfortable low effort mode in which only afraction of its capacity is engaged

        System 1 continuously generatessuggestions for System 2

        • impressions
        • intuitions
        • intentions
        • feelings

        If endorsed by System 2 impressions and intuitions turn into beliefs andimpulses turn into voluntary actions

        When all goes smoothly which is mostof the time System 2 adopts the suggestions of System 1 with little or nomodification You generally believe your impressions and act on yourdesires and that is fine—usually

        When System 1 runs into difficulty it calls on System 2 to support moredetailed and specific processing that may solve the problem of themoment

        System 2 is mobilized when a question arises for which System 1does not offer an answer as probably happened to you when youencountered the multiplication problem ×

        You can also feel a surgeof conscious attention whenever you are surprised

        System 2 is activ”>< is actated when an event is detected that violates the model of the worldthat System 1 maintains In that world lamps do not jump cats do not bark and gorillas do not cross basketball courts

        most of what you (your System) think and do originates in your System 1 but System 2 takes over whenthings get difficult and it normally has the last word

        1 of the tasks of System 2 is to overcome the impulses ofSystem 1 In other words System 2 is in charge of self control

        Illusions

        You have chosen to believe themeasurement but you cannot prevent System 1 from doing its thing; youcannot decide to see the lines as equal although you know they are

        Toresist the illusion there is only 1 thing you can do: you must learn tomistrust your impressions of the length of lines when fins are attached tothem To implement that rule you must be able to recognize the illusorypattern and recall what you know about it If you can do this you will neveragain be fooled by the Müller Lyer illusion But you will still see 1 line aslonger than the other

        cognitive illusions

        Not all illusions are visual There are illusions of thought which we callcognitive illusions

        The question that is most often asked about cognitive illusions iswhether they can be overcome

        Useful Fictions

        Mental arithmetic is a voluntary activity thatrequires effort should not be performed while making a left turn and isassociated with dilated pupils and an accelerated heart rate ”

    • Speaking of System 1 and System 2
      • “He had an impression but some of his impressions areillusions ”
      • “This was a pure System 1 response She reacted to the threatbefore she recognized it ”
      • “This is your System 1 talking Slow down and let your System 2take control ”
  • Chapter 02 Attention and Effort
    • Mental Effort

      Eckhard Hess

      It begins with Hess reporting that his wife hadnoticed his pupils widening as he watched beautiful nature pictures and itends with 2 striking pictures of the same good looking woman whosomehow appears much more attractive in 1 than in the other

      There isonly 1 difference: the pupils of the eyes appear dilated in the attractivepicture and constricted in the other

      1 of Hess’s findings especially captured my attention

      He had noticedthat the pupils are sensitive indicators of mental effort—they dilatesubstantially when people multiply 2 digit numbers and they dilate moreif the problems are hard than if they are easy

      His observations indicatedthat the response to mental effort is distinct from emotional arousal

      developed a setup similar to an optician’s examinationroom in which the experimental participant leaned her head on a chin andforeheadrest and stared at a camera while listening to prerecordedinformation and answering questions on the recorded beats of ametronome The beats triggered an infrared flash every second causing apicture to be taken At the end of each experimental session we wouldrush to have the film developed project the images of the pupil on ascreen and go to work with a ruler The method was a perfect fit for youngand impatient researchers: we knew our results almost immediately andthey always told a clear story

      Beatty and I focused on paced tasks such as Add in which we knewprecisely what was on the subject’s mind at any time We recorded stringsof digits on beats of the metronome and instructed the subject to repeat ortransform the digits 1 indigits onby 1 maintaining the same rhythm We soon discovered that the size of the pupil varied second by second reflecting the changing demands of the task The shape of the responsewas an inverted V As you experienced it if you tried Add or Add effortbuilds up with every added digit that you hear reaches an almostintolerable peak as you rush to produce a transformed string during andimmediately after the pause and relaxes gradually as you “unload” yourshort term memory The pupil data corresponded precisely to subjectiveexperience: longer strings reliably caused larger dilations thetransformation task compounded the effort and the peak of pupil sizecoincided with maximum effort

      During a mental multiplication the pupilnormally dilated to a large size within a few seconds and stayed large aslong as the individual kept working on the problem; it contractedimmediately when she found a solution or gave up As we watched fromthe corridor we would sometimes surprise both the owner of the pupil andour guests by asking “Why did you stop working just now?” The answerfrom inside the lab was often “How did you know?” to which we wouldreply “We have a window to your soul ”

      mental life

      Unlike the tasks that we were studying themundane conversation apparently demanded little or no effort—no morethan retaining 2 or three digits This was a eureka moment: I realized thatthe tasks we had chosen for study were exceptionally effortful

      life of System 2—

      normally conducted at the pace of a comfortable walk sometimesinterrupted by episodes of jogging and on rare occasions by a franticsprint The Add and Add exercises are sprints and casual chatting isa stroll

      We found that people when engaged in a mental sprint may becomeeffectively blind

      effectively blind

      We found that people when engaged in a mental sprint may becomeeffectively blind The authors of The Invisible Gorilla had made the gorilla“invisible” by keeping the observers intensely busy counting passes

      index of the current rate

      Similarly wedecide what to do but we have limited control over the effort of doing it Suppose you are shown four digits say and told that your lifedepends on holding them in memory for seconds However much youwant to live you cannot exert as much effort in this task as you would beforced to invest to complete an Add transformation on the same digits

      limitedcapacity

      System 2 and the electrical circuits in your home both have limitedcapacity but they respond differently to threatened overload A breakertrips when the demand for current is excessive causing all devices on thatcircuit to lose power at once In contrast the response to mental overloadis selective and precise

      System 2 protects the most important activity soit receives the attention it needs; “spare capacity” is allocated second bysecond to other tasks

      allocation of attention

      In our version of the gorilla experiment weinstructed the participants to assign priority to the digit task We know thatthey followed that instruction because the timing of the visual target had noeffect on the main task If the critical letter was presented at a time of highdemand the subjects simply did not see it When the transformation taskwas less demanding detection performance was better

      Orienting and responding quickly to the gravest threatsor most promising opportunities improved the chance of survival and thiscapability is certainly not restricted to humans

      Even in modern humans System 1 takes over in emergencies and assigns total priority to selfprotectiveactions Imagine yourself at the wheel of a car that unexpectedlyskids on a large oil slick You will find that you have responded to the threatbefore you became fully conscious of it

      Attention andEffort

      As you become skilled in a task its demand for energy diminishes Studies of the brain have shown that the pattern of activity associated withan action changes as skill increases with fewer brain regions involved

      As you become skilled in a task its demand for energy diminishes Studies of the brain have shown that the pattern of activity associated withan action changes as skill increases with fewer brain regions involved

      Talent has similar effects

      Highly intelligent individuals need less effort tosolve the same problems as indicated by both pupil size and brain activity

      A general “law of least effort” appd t” alies to cognitive as well as physicalexertion

      The law asserts that if there are several ways of achieving thesame goal people will eventually gravitate to the least demanding courseof action

      economy of action

      In the economy of action effort is a cost and the acquisition ofskill is driven by the balance of benefits and costs Laziness is built deepinto our nature

      Mental multiplication of 2 digit numbers and theAdd task are near the limit of what most people can do

      Mental multiplication of 2 digit numbers and theAdd task are near the limit of what most people can do

      What makes some cognitive operations more demanding and effortfulthan others?

      What outcomes must we purchase in the currency ofattention?

      What can System 2 do that System 1 cannot?

      Effort is required to maintain simultaneously in memory several ideasthat require separate actions or that need to be combined according to arule—rehearsing your shopping list as you enter the supermarket choosing between the fish and the veal at a restaurant or combining asurprising result from a survey with the information that the sample wassmall for example

      System 2 is the only 1 that can follow rules

      compareobjects on several attributes

      make deliberate choices betweenoptions

      automatic System 1 does not have these capabilities

      System 2 is the only 1 that can follow rules compareobjects on several attributes and make deliberate choices betweenoptions The automatic System 1 does not have these capabilities

      System detects simple relations (“they are all alike ” “the son is much taller thanthe father”) and excels at integrating information about 1 thing but itdoes not deal with multiple distinct topics at once nor is it adept at usingpurely statistical information

      A crucial capability of System 2

      “task sets”:

      • A crucial capability of System 2 is the adoption of “task sets”: it canprogram memory to obey an instruction that overrides habitual responses
        • Count all occurrences of the letter f in this page This is not a task you have ever performed before and it will not comenaturally to you but your System 2 can take it on It will be effortful to setyourself up for this exercise and effortful to carry it out though you willsurely improve with practice

          Count all occurrences of the letter f in this page This is not a task you have ever performed before and it will not comenaturally to you but your System 2 can take it on It will be effortful to setyourself up for this exercise and effortful to carry it out though you willsurely improve with practice

      “executive control”

      • Psychologists speak of “executive control” todescribe the adoption and termination of task sets and neuroscientistshave identified the main regions of the brain that serve the executivefunction 1 of these regions is involved whenever a conflict must beresolved

      Now suppose that at the end of the page you get another instruction:count all the commas in the next page This will be harder because you willhave to overcome the newly acquired tendency to focus attention on theletter f 1 of the significant discoveries of cognitive psychologists inrecent decades is that switching from 1 task to another is effortful especially under time pressure The need for rapid switching is 1 of thereasons that Add and mental multiplication are so difficult

      To performthe Add task you must hold several digits in your working memory at thesame time associating each with a particular operation: some digits are inthe queue to be transformed 1 is in the process of transformation andothers already transformed are retained for reporting Modern tests ofworking memory require the individual to switch repeatedly between 2demanding tasks retaining the results of 1 operation while performingthe other

      People who do well on these tests tend to do well on tests ofgeneral intelligence

      the ability to control attention is not simply ameasure of intelligence

      measures of efficiency in the control of attentionpredict performance

      Time pressure is another driver of effort

      Much like the electricity meter outside your house or apartment thepupils offer an index of the current rate at which mental energy is used

      Speaking of Attention and Effort

      • “I won’t try to solve this while driving This is a pupil dilating task Itrequires mental effort!”

        “The law of least effort is operating here He will think as little aspossible ”

        “She did not forget about the meeting She was completelyfocused on something else when the meeting was set and shejust didn’t hear you ”

        “What came quickly to my mind was an intuition from System 1 I’llhave to start over and search my memory deliberately ”

  • Chapter 03 The Lazy Controller
    • Researchers have applied diverse methods to examine the connectionbetween thinking and self control

      Some have addressed it by asking thecorrelation question:

      If people were ranked by their self control and by theircognitive aptitude would individuals have similar positions in the 2rankings?

      four year old children experiment

      • They were given a choice between a small reward (1 Oreo) which they could have at any time or a larger reward (2 cookies) forwhich they had to wait minutes under difficult conditions They were toremain al1 in a room facing a desk with 2 objects: a single cookieand a bell that the child could ring at any time to call in the experimenterand receiven oand recei the 1 cookie As the experiment wasdescribed: “There were no toys books pictures or other potentiallydistracting items in the room The experimenter left the room and did notreturn until min had passed or the child had rung the bell eaten therewards stood up or shown any signs of distress ”

        The children were watched through a 1 way mirror and the film thatshows their behavior during the waiting time always has the audienceroaring in laughter About half the children managed the feat of waiting for minutes mainly by keeping their attention away from the temptingreward

        Ten or fifteen years later a large gap had ed between thosewho had resisted temptation and those who had not

        The resisters hadhigher measures of executive control in cognitive tasks and especially theability to reallocate their attention effectively

        As young adults they wereless likely to take drugs A significant difference in intellectual aptitudeemerged: the children who had shown more self control as four year oldshad substantially higher scores on tests of intelligence

      cognitive control

      A team of researchers at the University of Oregon explored the linkbetween cognitive control and intelligence in several ways including anattempt to raise intelligence by improving the control of attention

      Duringfive minute sessions they exposed children aged four to six to variouscomputer games especially designed to demand attention and control In1 of the exercises the children used a joystick to track a cartoon cat andmove it to a grassy area while avoiding a muddy area The grassy areasgradually shrank and the muddy area expanded requiring progressivelymore precise control

      The testers found that training attention not onlyimproved executive control; scores on nonverbal tests of intelligence alsoimproved and the improvement was maintained for several months

      Otherresearch by the same group identified specific genes that are involved inthe control of attention showed that parenting techniques also affected thisability and demonstrated a close connection between the children’s abilityto control their attention and their ability to control their emotions

      Cognitive Reflection Test

      He went on to study thecharacteristics of students who score very low on this test—the supervisoryfunction of System 2 is weak in these people—

      found that they arepr1 to answer questions with the first idea that comes to mind andunwilling to invest the effort needed to check their intuitions

      Individuals whouncritically follow their intuitions about puzzles are also pr1 to acceptother suggestions from System 1

      they are impulsive impatient and keen to receive immediate gratification

      For example %of the intuitive respondents say they would prefer to get $ this monthrather than $ next month

      Only % of those who solve all threepuzzles correctly have the same shortsighted preference for receiving asmaller amount immediately

      When asked how much they will pay to getovernight delivery of a book they have ordered the low scorers on theCognitive Reflection Test are willing to pay twice as much as the highscorers Frederick’s findings suggest that the characters of ourpsychodrama have different “personalities

      System 1 is impulsive andintuitive;

      System 2 is capable of reasoning and it is cautious but at leastfor some people it is also lazy

      What makes some people more susceptible thanothers to biases of judgment?

      Rationality and the Reflective Mind

      • separate “minds ”

        algorithmic

        1 of these minds (he calls italgorithmic) deals with slow thinking and demanding computation

        Somepeople are better than others in these tasks of brain power—they are theindividuals who excel in intelligence tests and are able to switch from 1task to another quickly and efficiently

        intelligence does not make people immune to biases

        concept of a rationalperson is similar to what I earlier labeled “engaged ”

        The core of hisargument is that rationality should be distinguished from intelligence

        Inhis view superficial or “lazy” thinking is a flaw in the reflective mind afailure of rationality

      Speaking of Control

      • “She did not have to struggle to stay on task for hours She was ina state of flow ”

        “His ego was depleted after a long day of meetings So he justturned to standard operating procedures instead of thinkingthrough the problem ”

        “He didn’t bother to check whether what he said made sense Does he usually have a lazy System 2 or was he unusually tired?”

        “Unfortunately she tends to say the first thing that comes into hermind She probably also has trouble delaying gratification WeakSystem 2 ”

      System 2 also has a natural speed You expend some mental energy inrandom thoughts and in monitoring what goes on around you even whenyour mind does nothing in particular but there is little strain

      Unless you arein a situation that makes you unusually wary or self conscious monitoringwhat happens in the environment or inside your head demands little effort You make many small decisions as you drive your car absorb someinformation as you read the newspaper and conduct routine exchanges ofpleasantries with a spouse or a colleague all with little effort and no strain Just like a stroll

      You can confirm this claim by a simpleexperiment While walking comfortably with a friend ask him to compute × in his head and to do so immediately He will almost certainly stopin his tracks

      Accelerating beyond my strolling speed completely changes theexperience of walking because the transition to a faster walk brings abouta sharp deterioration in my ability to think coherently As I speed up myattention is drawn with increasing frequency to the experience of walkingand to the deliberate maintenance of the faster pace My ability to bring atrain of thought to a conclusion is impaired accordingly

      My experience is that I can think while strolling but cannotengage in mental work that imposes a heavy load on short term memory

      flow

      • state of effortless attending

        People who experience flow describe it as“a state of effortless concentration so deep that they lose their sense oftime of themselves of their problems ”

      “optimalexperience ”

      • Flow neatly separates the 2 formsof effort:
        • concentration on the task
        • the deliberate control of attention

      In a state of flow however maintainingfocused attention on these absorbing activities requires no exertion of selfcontrol thereby freeing resources to be directed to the task at hand

      The Busy and Depleted System 2

      • forms of mental work
      • self control
      • cognitiveeffort

      psychological studies have shownthat people who are simultaneously challenged by a demanding cognitivetask and by a temptation are more likely to yield to the temptation

      Imaginethat you are asked to retain a list of seven digits for a minute or 2 Youare told that remembering the digits is your top priority While yourattention is focused on the digits you are offered a choice between 2desserts: a sinful chocolate cake and a virtuous fruit salad The evidencesuggests that you would be more likely to select the tempting chocolatecake when your mind is loaded with digits System 1 has more influenceon behavior when System 2 is busy and it has a sweet tooth

      People who are cognitively busy are also more likely to make selfishchoices use sexist language and make superficial judgments in socialsituations

      Memorizing and repeating digits loosens the hold of System 2on behavior but of course cognitive load is not the only cause ofweakened self control

      A few drinks have the same effect as does asleepless night

      The self control of morning people is impaired at night; thereverse is true of night people Too much concern about how well 1 isdoing in a task sometimes disrupts performance by loading short termmemory with pointless anxious thoughts

      The conclusion

      The conclusion is straightforward:self control requires attention and effort

      controlling thoughts and behaviors is 1 of the tasks that System 2performs

      variants of voluntaryeffort

      • cognitive
      • emotional
      • physical

      ego depletion

      • The phenomenon has been named ego depletion In a typicaldemo thypical denstration participants who are instructed to stifle theiremotional reaction to an emotionally charged film will later perform poorlyon a test of physical stamina—how long they can maintain a strong grip ona dynamometer in spite of increasing discomfort
        • A series of surprising experiments by the psychologist Roy Baumeisterand his colleagues has shown conclusively that all variants of voluntaryeffort—cognitive emotional or physical—draw at least partly on a sharedpool of mental energy

          Baumeister’s group has repeatedly found that an effort of will or selfcontrolis tiring

          if you have had to force yourself to do something you areless willing or less able to exert self control when the next challenge comesaround

          The emotional effort inthe first phase of the experiment reduces the ability to withstand the pain ofsustained muscle contraction and ego depleted people thereforesuccumb more quickly to the urge to quit

      In another experiment peopleare first depleted by a task in which they eat virtuous foods such asradishes and celery while resisting the temptation to indulge in chocolateand rich cookies Later these people will give up earlier than normal whenfaced with a difficult cognitive task

      list of situations and tasks that are now known to deplete self control

      • avoiding the thought of white bears
      • inhibiting the emotional response to a stirring film
      • making a series of choices that involve conflict
      • trying to impress others
      • responding kindly to a partner’s bad behavior
      • interacting with a person of a different race (for prejudicedindividuals)

      indications of depletion

      • deviating from 1’s diet
      • overspending on impulsive purchases
      • reacting aggressively to provocation
      • persisting less time in a handgrip task
      • performing poorly in cognitive tasks and logical decision making

      The evidence is persuasive

      activities that impose high demands onSystem 2 require self control

      the exertion of self control is depletingand unpleasant

      Unlike cognitive load ego depletion is at least in part aloss of motivation

      After exerting self control in 1 task you do not feellike making an effort in another although you could do it if you really had to

      people were able to resist the effects of egodepletion when given a strong incentive to do so

      increasingeffort is not an option when you must keep six digits in short term memorywhile performing a task

      Ego depletion is not the same mental state ascognitive busyness

      The most surprising discovery made by Baumeister’s group shows ashe puts it that the idea of mental energy is more than a mere metaphor

      The nervous system consumes more glucose than most other parts of thebody and effortful mental activity appears to be especially expensive in thecurrency of glucose

      When you are actively involved in difficult cognitivereasoning or engaged in a task that requires self control your bloodglucose level drops

      Volunteers in 1 of their studies watched a short silent film of a womanbeing interviewed and were asked to interpret her body language Whilethey were performing the task a series of words crossed the screen inslow succession The participants were specifically instructed to ignore thewords and if they found their attention drawn away they had to refocus theirconcentration on the woman’s behavior This act of self control was knownto cause ego depletion

      The lemonade was sweetened with glucosefor half of them and with Splenda for the others Then all participants weregiven a task in which they needed to overcome an intuitive response to getthe correct answer Intuitive errors are normally much more frequent amongego depleted people and the drinkers of Splenda showed the expecteddepletion effect

      On the other hand the glucose drinkers were notdepleted Restoring the level of available sugar in the brain had preventedthe deterioration of performance

      A disturbing demonstration of depletion effects in judgment was recentlyreported in the Proceedings of the National Academy of Sciences

      • Theunwitting participants in the study were eight parole judges in Israel Theyspend entire days reviewing applications for parole The cases arepresented in random order and the judges spend little time on each 1 an average of minutes (The default decision is denial of parole; only % of requests are approved The exact time of each decision isrecorded and the times of the judges’ three food breaks—morning break lunch and afternoon break—during the day are recorded as well ) Theauthors of the study plotted the proportion of approved requests againstthe time since the last food break The proportion spikes after each meal when about % of requests are granted During the 2 hours or so untilthe judges’ next feeding the approval rate drops steadily to about zero justbefore the meal As you might expect this is an unwelcome result and theauthors carefully checked many alternative explanations

        The best possibleaccount of the data provides bad news: tired and hungry judges tend to fallback on the easier default position of denying requests for parole Bothfatigue and hunger probably play a role

      The Lazy System 2

      • 1 of the main functions of System 2 is to monitor and control thoughtsand actions “suggested” by System 1 allowing some to be expresseddirectly in behavior and suppressing or modifying others

        For an example here is a simple puzzle Do not try to solve it but listento your intuition

        • A bat and ball cost $ The bat costs 1 dollar more than the ball How much does the ball cost?

        theory of judgment basedon 2 systems

        he used the bat and ball puzzle to study a centralquestion:

        How closely does System 2 monitor the suggestions of System?

        • His reasoning was that we know a significant fact about any1 whosays that the ball costs ¢: that person did not actively check whether theanswer was correct and her System 2 endorsed an intuitive answer that itcould have rejected with a small investment of effort

          the people who give the intuitive answer have missed an obvioussocial cue; they should have wondered why any1 would include in aquestionnaire a puzzle with such an obvious answer

        A failure to check isremarkable because the cost of checking is so low: a few seconds ofmental work (the problem is moderately difficult) with slightly tensedmuscles and dilated pupils could avoid an embarrassing mistake

        Peoplewho say ¢ appear to be ardent followers of the law of least effort

        Peoplewho avoid that answer appear to have more active minds

        Many thousands of university students have answered the bat and ballpuzzle and the results are shocking More than % of students atHarvard MIT and Princeton ton gave the intuitive—incorrect—answer Atless selective universities the rate of demonstrable failure to check was inexcess of % The bat and ball problem is our first encounter with anobservation that will be a recurrent theme of this book

        many people areoverconfident pr1 to place too much faith in their intuitions

        Theyapparently find cognitive effort at least mildly unpleasant and avoid it asmuch as possible

        logical argument

        logical argument—2 premises and a conclusion

        Does the conclusion follow from the premises?

        All roses are flowers Some flowers fade quickly Therefore some roses fade quickly

        The bat and ball problem the flowers syllogism and theMichigan Detroit problem have something in common

        Failing theseminitests appears to be at least to some extent a matter of insufficientmotivation not trying hard enough

  • Chapter 04 The Associative Machine
    • To begin your exploration of the surprising workings of System 1 look atthe following words:

      Bananas Vomit

      A lot happened to you during the last second or 2 You experiencedsome unpleasant images and memories Your face twisted slightly in anexpression of disgust and you may have pushed this book imperceptiblyfarther away Your heart rate increased the hair on your arms rose a little and your sweat glands were activated In short you responded to thedisgusting word with an attenuated version of how you would react to theactual event All of this was completely automatic beyond your control

      There was no particular reason to do so but your mind automaticallyassumed a temporal sequence and a causal connection between thewords bananas and vomit forming a sketchy scenario in which bananascaused the sickness As a result you are experiencing a temporaryaversion to bananas (don’t worry it will pass)

      The state of your memoryhas changed in other ways: you are now unusually ready to recognize andrespond to objects and concepts associated with “vomit ” such as sick stink or nausea and words associated with “bananas ” such as yellow andfruit and perhaps apple and berries

      associative activation

      • The events that took place as a result of yourseeing the words happened by a process called associative activation

        This complex constellation of responses occurred quickly automatically and effortlessly You did not will it and you could not stop it It was anoperation of System 1

      associatively coherent

      • All thishappens quickly and all at once yielding a self reinforcing pattern ofcognitive emotional and physical responses that is both diverse andintegrated—it has been called associatively coherent

        An odd feature of what happened is that your System 1 treated the mereconjunction of 2 words as representations of reality Your body reacted inan attenuated replica of a reaction to the real thing and the emotionalresponse and physical recoil were part of the interpretation of the event

        Ascognitive scientists have emphasized in recent years cognition isembodied; you think with your body not only with your brain

      association of ideas

      • The mechanism that causes these mental events has been known for along time

      David Hume reduced the principles of association tothree

      associative memory

      • Psychologists think of ideas as nodes ina vast ne2rk called associative memory in which each idea is linked tomany others

        contiguity in time and place

        causality

        resemblance

      types of links

      • causes are linked to theireffects
        • (virus cold)
      • things to their properties
        • (lime green)
      • things tothe categories to which they belong
        • (banana fruit)

      Furthermore only a few of theactivated ideas will register in consciousness; most of the work ofassociative thinking is silent hidden from our conscious selves

      The notionthat we have limited access to the workings of our minds is difficult toaccept because naturally it is alien to our experience but it is true: youknow far less about yourself than you feel you do

      The Marvels of Priming

      • As is common in science the first big breakthrough in our understanding ofthe mechanism of association was an improvement in a method ofmeasurement Until a few decades ago the only way to study associationswas to ask many people questions such as

        “What is the first word thatcomes to your mind when you hear the word DAY?”

        The researchers talliedthe frequency of responses such as “night ” “sunny ” or “long ” In the s psychologists discovered that exposure to a word causes immediate andmeasurable changes in the ease with which many related words can beevoked If you have recently seen or heard the word EAT you aretemporarily more likely to complete the word fragment SO_P as SOUPthan as SOAP The opposite would happen of course if you had just seenWASH We call this a priming effect and say that the idea of EAT primesthe idea of SOUP and that WASH primes SOAP

        Priming effects take many forms If the idea of EAT is currently on yourmind (whether or not you are conscious of it) you will be quicker than usualto recognize the word SOUP when it is spoken in a whisper or presentedin a blurry font

        priming is not restricted to concepts and words

        • You cannotknow this from conscious experience of course but you must accept thealien idea that your actions and your emotions can be primed by events ofwhich you are not even aware

          In an experiment that became an instantclassic the psychologist John Bargh and his collaborators asked studentsat New York University—most aged eighteen to twenty 2—to assemblefour word sentences from a set of five words (for example “finds he ityellow instantly”)

          For 1 group of students half the scrambled sentencescontained words associated with the elderly such as Florida forgetful bald gray or wrinkle When they had completed that task the youngparticipants were sent out to do another experiment in an office down thehall That short walk was what the experiment was about The researchersunobtrusively measured the time it took people to get from 1 end of thecorridor to the other As Bargh had predicted the young people who hadfashi1d a sentence from words with an elderly theme walked down thehallway significantly more slowly than the others

        “Florida effect”

        The “Florida effect” involves 2 stages of priming

        • First the set ofwords primes thoughts of old age though the word old is never menti1d
        • second these thoughts prime a behavior walking slowly which isassociated with old age

        ideomotor effect

        • The idea of old age had not come to their consciousawareness but their actions had changed nevertheless This remarkablepriming phenomenon—the influencing of an action by the idea—is knownas the ideomotor effect

        The ideomotor link also works in reverse

        • The ideomotor link also works in reverse A study conducted in aGerman university was the mirror image of the early experiment that Barghand his colleagues had carried out in New York Students were asked towalk around a room for minutes at a rate of steps per minute whichwas about 1 third their normal pace After this brief experience theparticipants were much quicker to recognize words related to old age such as forgetful old and l1ly

        Reciprocal priming

        • Reciprocal priming effects tend toproduce a coherent reaction: if you were primed to think of old age youwould tend to act old and acting old would reinforce the thought of old age

        Reciprocal links

        • Reciprocal links are common in the associative ne2rk For example being amused tends to make you smile and smiling tends to make youfeel amused

        Primes That Guide Us

        • Studies of priming effects have yielded discoveries that threaten our selfimageas conscious and autonomous authors of our judgments and ourchoices

          For instance most of us think of voting as a deliberate act thatreflects our values and our assessments of policies and is not influencedby irrelevancies

          Our vote should not be affected by the location of thepolling station for example but it is A study of voting patterns in precinctsof Arizona in showed that the support for propositions to increase thefunding of schools was significantly greater when the polling station was ina school than when it was in a nearby location

        M1y primed people

        • Reminders of m1y produce some troubling effects Participants in 1experiment were shown a list of five words from which they were requiredto construct a four word phrase that had a m1y theme (“high a salarydesk paying” became “a high paying salary”)

          M1y primed people become more independent than they would bewithout the associative trigger

          They persevered almost twice as long intrying to solve a very difficult problem before they asked the experimenterfor help a crisp demonstration of increased self reliance

          M1y primedpeople are also more selfish: they were much less willing to spend timehelping another student who pretended to be confused about anexperimental task

          When an experimenter clumsily dropped a bunch ofpencils on the floor the participants with m1y (unconsciously) on theirmind picked up fewer pencils

          In another experiment in the series participants were told that they would shortly have a get acquaintedconversation with another person and were asked to set up 2 chairswhile the experimenter left to retrieve that person

          Participants primed bym1y chose in the exto stay much farther apart than their nonprimedpeers ( vs centimeters)

          M1y primed undergraduates alsoshowed a greater preference for being al1

          general theme of these findings is that the idea of m1y primesindividualism: a reluctance to be involved with others to depend on others or to accept demands from others

        authoritarian ideas

        • The evidence of priming studies suggests that reminding people of theirmortality increases the appeal of authoritarian ideas which may becomereassuring in the context of the terror of death

        “LadyMacbeth effect ”

        • People who were recently asked to think ofan action of which they are ashamed are more likely to complete thosefragments as WASH and SOAP and less likely to see WISH and SOUP Furthermore merely thinking about stabbing a coworker in the back leavespeople more inclined to buy soap disinfectant or detergent than batteries juice or candy bars Feeling that 1’s soul is stained appears to trigger adesire to cleanse 1’s body an impulse that has been dubbed the “LadyMacbeth effect ”

        Speaking of Priming

        “The sight of all these people in uniforms does not primecreativity ”

        “The world makes much less sense than you think Thecoherence comes mostly from the way your mind works

        “They were primed to find flaws and this is exactly what theyfound ”

        “His System 1 constructed a story and his System 2 believed it Ithappens to allel

        “I made myself smile and I’m actually feeling better!”

  • Chapter 05 Cognitive Ease
    • Whenever you are conscious and perhaps even when you are not multiplecomputations are going on in your brain which maintain and updatecurrent answers to some key questions: Is anything new going on? Is therea threat? Are things going well? Should my attention be redirected? Ismore effort needed for this task? You can think of a cockpit with a set ofdials that indicate the current values of each of these essential variables The assessments are carried out automatically by System 1 and 1 oftheir functions is to determine whether extra effort is required from System

      measures cognitive ease

      • range is between“Easy” and “Strained ”

        Easy is a sign that things are going well—nothreats no major news no need to redirect attention or mobilize effort

        Strained indicates that a problem exists which will require increasedmobilization of System 2

      cognitive strain

      • Cognitive strain is affected by both the current level of effort and thepresence of unmet demands The surprise is that a single dial of cognitiveease is connected to a large ne2rk of diverse inputs and outputs

      Illusions of Remembering

      • The word illusion brings visual illusions to mind because we are allfamiliar with pictures that mislead But vision is not the only domain ofillusions; memory is also susceptible to them as is thinking moregenerally

        “The experience of familiarity has asimple but powerful quality of ‘pastness’ that seems to indicate that it is adirect reflection of prior experience ”

        This quality of pastness is an illusion

      Illusions of Truth

      • A reliable way to make people believe in falsehoods isfrequent repetition because familiarity is not easily distinguished fromtruth

      How to Write a Persuasive Message

      • The general principle is that anything you can do to reduce cognitivestrain will help so you should first maximize legibility

        if your message is to beprinted use high quality paper to maximize the contrast betweencharacters and their background

        If you use color you are more likely to bebelieved if your text is printed in bright blue or red than in middling shadesof green yellow or pale blue

        If you care about being thought credible and intelligent do not usecomplex language where simpler language will do

        if you quote a source choose 1 with a name that is easy topronounce

      Strain and Effort

      • The symmetry of many associative connections was a dominant theme inthe discussion of associative coherence

        As we saw earlier people whoare made to “smile” or “frown” by sticking a pencil in their mouth or holdinga ball between their furrowed brows are pr1 to experience the emotionsthat frowning and smiling normally express

        The same self reinforcingreciprocity is found in studies of cognitive ease On the 1 hand cognitivestrain is experienced when the effortful operations of System 2 areengaged

        On the other hand the experience of cognitive strain whateverits source tends to mobilize System 2 shifting people’s approach toproblems from a casual intuitive mode to a more engaged and analyticmode

        The experimenters recruited Princeton students to take the CRT Half of them saw the puzzles in a small font in washed out gray print Thepuzzles were legible but the font induced cognitive strain

        The results tell aclear story: % of the students who saw the CRT in normal font made atleast 1 mistake in the test but the proportion dropped to % when thefont was barely legible

        performance was betterwith the bad font

        Cognitive strain whatever its source mobilizes System which is more likely to reject the intuitive answer suggested by System

      The Pleasure of Cognitive Ease

      Ease Mood and Intuition

      Remote Association Test (RAT)

      • For an easy example consider the following three words:cottage Swiss cakeCan you think of a word that is associated with all three? You probablyworked out that the answer is cheese Now try this:dive light rocket

        Can people feel that a triadof words has a solution before they know what the solution is?

        How doesmood influence performance in this task?

        The first surprise is that people’s guesses are much more accurate thanthey would be by chance I find this astonishing A sense of cognitive easeis apparently generated by a very faint signal from the associativemachine which “knows” that the three words are coherent (share anassociation) long before the association is retrieved The role of cognitiveease in the judgment was confirmed experimentally by another Germanteam: manipulations that increase cognitive ease (priming a clear font pre exposing words) all increase the tendency to see the words as linked

        Another remarkable discovery is the powerful effect of mood on thisintuitive performance

        Another remarkable discovery is the powerful effect of mood on thisintuitive performance The experimentershape tende computed an“intuition index” to measure accuracy They found that putting theparticipants in a good mood before the test by having them think happythoughts more than doubled accuracy

        An even more striking result is thatunhappy subjects were completely incapable of performing the intuitivetask accurately; their guesses were no better than random Mood evidentlyaffects the operation of System 1: when we are uncomfortable andunhappy we lose touch with our intuition

        These findings add to the growing evidence that good mood intuition creativity gullibility and increased reliance on System 1 form a cluster

        Atthe other pole sadness vigilance suspicion an analytic approach andincreased effort also go together

        A happy mood loosens the control ofSystem 2 over performance: when in a good mood people become moreintuitive and more creative but also less vigilant and more pr1 to logicalerrors

        mere exposure effect the connection makesbiological sense

        A good mood is a signal that things are generally goingwell the environment is safe and it is all right to let 1’s guard down

        Abad mood indicates that things are not going very well there may be athreat and vigilance is required

        Cognitive ease is both a cause and aconsequence of a pleasant feeling

      Triads

      • cottage Swiss cake
      • dive light rocket
      • sleep mail switch
      • salt deep foam

      Speaking of Cognitive Ease

      • “Let’s not dismiss their business plan just because the fontmakes it hard to read ”

        “We must be inclined to believe it because it has been repeatedso often but let’s think it through again ”

        “Familiarity breeds liking This is a mere exposure effect ”

        “I’m in a very good mood today and my System 2 is weaker thanusual I should be extra careful ”

  • Chapter 06 Norms Surprises and Causes
    • The central characteristics and functions of System 1 and System 2 havenow been introduced with a more detailed treatment of System 1

      Freelymixing metaphors we have in our head a remarkably powerful computer not fast by conventional hardware standards but able to represent thestructure of our world by various types of associative links in a vast ne2rkof various types of ideas The spreading of activation in the associativemachine is automatic but we (System 2) have some ability to control thesearch of memory and also to program it so that the detection of an eventin the environment can attract attention

      Assessing Normality

      The main function of System 1 is to maintain and update a model of yourpersonal world which represents what is normal in it

      The model isconstructed by associations that link ideas of circumstances events actions and outcomes that co occur with some regularity either at thesame time or within a relatively short interval

      A capacity for surprise is an essential aspect of our mental life andsurprise itself is the most sensitive indication of how we understand ourworld and what we expect from it

      2 main varieties of surprise

      • Active Surprise Some expectations are active and conscious—you know you are waitingfor a particular event to happen
        • When the hour is near you may beexpecting the sound of the door as your child returns from school; when thedoor s you expect the sound of a familiar voice You will be surprisedif an actively expected event does not occur

        Passive Surprise there is a much larger category of events that you expect passively;

        • you don’t wait for them butyou are not surprised when they happen

      “norm theory ”

      • “How many animals of each kind did Moses take into the ark?”

        Thenumber of people who detect what is wrong with this question is so smallthat it has been dubbed the “Moses illusion ” Moses took no animals intothe ark; Noah did Like the incident of the wincing soup eater the Mosesillusion is readily explained by norm theory The idea of animals going intothe ark sets up a biblical context and Moses is not abnormal in thatcontext You did not positively expect him but the mention of his name isnot surprising It also helps that Moses and Noah have the same vowelsound and number of syllables As with the triads that produce cognitiveease you unconsciously detect associative coherence between “Moses”and “ark” and so quickly accept the question Replace Moses with GeorgeW Bush in this sentence and you will have a poor political joke but noillusion

        When something cement does not fit into the current context of activatedideas the system detects an abnormality

      rules of associativecoherence

      • After spending a day exploring beautiful sights in the crowdedstreets of New York Jane discovered that her wallet was missing

        When people who had read this brief story (along with many others) weregiven a surprise recall test the word pickpocket was more stronglyassociated with the story than the word sights even though the latter wasactually in the sentence while the former was not

      Statistical thinking

      • Statistical thinking derivesconclusions about individual cases from properties of categories andensembles

        Unfortunately System 1 does not have the capability for thismode of reasoning;

        System 2 can learn to think statistically but few peoplereceive the necessary training

      Speaking of Norms and Causes

      • “When the second applicant also turned out to be an old friend ofmine I wasn’t quite as surprised Very little repetition is neededfor a new experience to feel normal!”

        “When we survey the reaction to these products let’s make surewe don’t focus exclusively on the average We should considerthe entire range of normal reactions ”

        “She can’t accept that she was just unlucky; she needs a causalstory She will end up thinking that some1 intentionallysabotaged her work

  • Chapter 07 A Machine for Jumping to Conclusions
    • The great comedian Danny Kaye had a line that has stayed with me sincemy adolescence Speaking of a woman he dislikes he says “Her favoriteposition is beside herself and her favorite sport is jumping to conclusions ”

      Jumping toconclusions

      • Jumping toconclusions is efficient if the conclusions are likely to be correct and thecosts of an occasional mistake acceptable and if the jump saves muchtime and effort

        Jumping to conclusions is risky when the situation isunfamiliar the stakes are high and there is no time to collect moreinformation

        These are the circumstances in which intuitive errors areprobable which may be prevented by a deliberate intervention of System

      A Bias to Believe and Confirm

      • understanding a statement must begin with an attempt to believe it:you must first know what the idea would mean if it were true Only then canyou decide whether or not to unbelieve it

      Exaggerated Emotional Coherence (Halo Effect)

      haloeffect

      • The tendency to like (or dislike) everything about aperson—including things you have not observed—is known as the haloeffect

        The term has been in use in psychology for a century but it has notcome into wide use in everyday language This is a pity because the haloeffect is a good name for a common bias that plays a large role in shapingour view of people and situations It is 1 of the ways the representationof the world that System 1 generates is simpler and more coherent thanthe real thing

        Alan: intelligent—industrious—impulsive—critical—stubborn—envious

        Ben: envious—stubborn—critical—impulsive—industrious—intelligent

        If you are like most of us you viewed Alan much more favorably than Ben The initial traits in the list change the very meaning of the traits that appearlater The stubbornness of an intelligent person is seen as likely to bejustified and may actually evoke respect but intelligence in an envious andstubborn person makes him more dangerous

        The halo effect is also anexample of suppressed ambiguity: like the word bank the adjectivestubborn is ambiguous and will be interpreted in a way that makes itcoherent with the context

        The sequence in which we observe characteristics of a person is oftendetermined by chance Sequence matters however because the haloeffect increases the weight of first impressions sometimes to the point thatsubsequent information is mostly wasted

      What You See is All There is (Wysiati)

      • It is the consistency of theinformation that matters for a good story not its completeness Indeed youwill often find that knowing little makes it easier to fit everything you knowinto a coherent pattern

        WY SIATI facilitates the achievement of coherence and of the cognitiveease that causes us to accept a statement as true It explains why we canthink fast and how we are able to make sense of partial information in acomplex world

      list of biases ofjudgment and choice

      Overconfidence

      As the WY SIATI rule implies neither the quantitynor the quality of the evidence counts for much in subjectiveconfidence The confidence that individuals have in their beliefsdepends mostly on the quality of the story they can tell about whatthey see even if they see little We often fail to allow for thepossibility that evidence that should be critical to our judgment ismissing—what we see is all there is Furthermore our associativesystem tends to settle on a coherent pattern of activation andsuppresses doubt and ambiguity

      Framing effects

      • Different ways of presenting the same informationoften evoke different emotions The statement that “the odds ofsurvival 1 month after surgery are %” is more reassuring thanthe equivalent statement that “mortality within 1 month of surgery is % ”

        Theequivalence of the alternative formulations is transparent but anindividual normally sees only 1 formulation and what she sees isall there is

        Base rate neglect

        Recall Steve the meek and tidy soul who is oftenbelieved to be a librarian The personality description is salient andvivid and although you surely know that there are more male farmer

      Base rers than male librarians

      Speaking of Jumping to Conclusions

      • “She knows nothing about this person’s management skills Allshe is going by is the halo effect from a good presentation

        “Let’s decorrelate errors by obtaining separate judgments on theissue before any discussion We will get more information fromindependent assessments ”

        “They made that big decision on the basis of a good report from1 consultant WYSIATI—what you see is all there is They didnot seem to realize how little information they had ”

        “They didn’t want more information that might spoil their story WYSIATI ”

  • Chapter 08 How Judgments Happen
    • There is no limit to the number of questions you can answer whether theyare questions some1 else asks or questions you ask yourself Nor isthere a limit to the number of attributes you can evaluate You are capableof counting the number of capital letters on this page comparing the heightof the windows of your house to the 1 across the street and assessingthe political prospects of your senator on a scale from excellent todisastrous

      The questions are addressed to System 2 which will directattention and search memory to find the answers System 2 receivesquestions or generates them: in either case it directs attention andsearches memory to find the answers System 1 operates differently Itcontinuously monitors what is going on outside and inside the mind andcontinuously generates assessments of various aspects of the situationwithout specific intention and with little or no effort

      Basic Assessments

      • System 1 has been shaped by evolution to provide a continuousassessment of the main problems that an organism must solve to survive

        How are things going?

        Is there a threat or a major opportunity?

        Iseverything normal?

        Should I approach or avoid?

        we have inherited the neuralmechanisms that evolved to provide ongoing assessments of threat level and they have not been turned off

        Situations are constantly evaluated asgood or bad requiring escape or permitting approach

        Good mood andcognitive ease are the human equivalents of assessments of safety andfamiliarity

      biological roots of the rapid judgments of how safe it is to interact with astranger

      He showed that we are endowed with an ability to evaluate in asingle glance at a stranger’s face 2 potentially crucial facts about thatperson:

      • how dominant (and therefore potentially threatening) he is
      • how trus2rthy he is whether his intentions are more likely to be friendly orhostile

      people judge competence by combining the 2dimensions of strength and trus2rthiness

      Intensity Matching

      The Mental Shotgun

      • System 1 carries out many computations at any 1 time Some of theseare routine assessments that go on continuously Whenever your eyes are your brain computes a three dimensional representation of what is inyour field of vision complete with the shape of objects their position inspace and their identity

      Speaking of Judgment

      • “Evaluating people as attractive or not is a basic assessment You do that automatically whether or not you want to and itinfluences you ”

        “There are circuits in the brain that evaluate dominance from theshape of the face He looks the part for a leadership role ”

        “The punishment won’t feel just unless its intensity matches thecrime Just like you can match the loudness of a sound to thebrightness of a light ”

        “This was a clear instance of a mental shotgun He was askedwhether he thought the company was financially sound but hecouldn’t forget that he likes their product

  • Chapter 09 Answering an Easier Question
    • A remarkable aspect of your mental life is that you are rarely stumped True you occasionally face a question such as × = ? to which noanswer comes immediately to mind but these dumbfounded moments arerare The normal state of your mind is that you have intuitive feelings andopinions about almost everything that comes your way You like or dislikepeople long before you know much about them; you trust or distruststrangers without knowing why; you feel that an enterprise is bound tosucceed without analyzing it Whether you state them or not you often haveanswers to questions that you do not completely understand relying 1vidence that you can neither explain nor defend

      Substituting Questions

      • Questions Substitution
        • The target question is the assessment you intend to produce
        • The heuristic question is the simpler question that you answer instead

      heuristic

      • The technical definition of heuristic is a simple procedure that helps findadequate though often imperfect answers to difficult questions The wordcomes from the same root as eureka
        • The idea of substitution came up early in my work with Amos and it wasthe core of what became the heuristics and biases approach We askedourselves how people manage to make judgments of probability withoutknowing precisely what probability is

          We concluded that people mustsomehow simplify that impossible task and we set out to find how they doit Our answer was that when called upon to judge probability peopleactually judge something else and believe they have judged probability

          System 1 often makes this move when faced with difficult target questions if the answer to a related and easier heuristic question comes readily tomind

      How to Solve It

      • “If you can’t solve a problem then there is an easierproblem you can solve: find it ”

      Difficult questions and before you can produce a reas1d answer toany of them you must deal with other difficult issues

      • What is the meaningof happiness?
      • What are the likely political developments in the next sixmonths?
      • What are the standard sentences for other financial crimes?
      • Howstrong is the competition that the candidate faces?
      • What otherenvironmental or other causes should be considered?

      Dealing with thesequestions seriously is completely impractical But you are not limited toperfectly reas1d answers to questions

      There is a heuristic alternative tocareful reasoning which sometimes works fairly well and sometimes leadsto serious errors

      Target Question Heuristic Question

      • T How much would you contribute tosave an endangered species?
      • H How much emotion do I feel whenI think of dying dolphins?
      • T How happy are you with your lifethese days?
      • H What is my mood right now?
      • T How popular is the president rightnow?
      • H How popular will the president besix months from now?
      • T How should financial advisers whoprey on the elderly be punished?
      • H How much anger do I feel when Ithink of financial predators?
      • T This woman is running for the primary How far will she go in politics?
      • H Does this woman look like apolitical winner?

      mental shotgun

      • The mental shotgun makes it easy to generate quick answers to difficultquestions without imposing much hard work on your lazy System 2

        The automatic processes of the mental shotgun and intensity matchingoften make available 1 or more answers to easy questions that could bemapped onto the target question

      The D Heuristic

      • process of substitution
        • In the D interpretation the person on theright is both much farther away and much larger than the person on the left For most of us this impression of D size is overwhelming Only visualartists and experienced photographers have developed the skill of seeingthe drawing as an object on the page For the rest of us substitutionoccurs: the dominant impression of D size dictates the judgment of Dsize The illusion is due to a D heuristic

        The essential step in the heuristic—the substitution of three dimensionalfor 2 dimensional size—occurred automatically The picture containscues that suggest a D interpretation These cues are irrelevant to thetask at hand—the judgment of size of the figure on the page—and youshould have ignored them but you could not

        The bias associated with theheuristic is that objects that appear to be more distant also appear to belarger on the page As this example illustrates a judgment that is based onsubstitution will inevitably be biased in predictable ways In this case ithappens so deep in the perceptual system that you simply cannot help it

      The Mood Heuristic for Happiness

      • How happy are you these days? How many dates did you have last month?
        • The experimenters were interestedin the correlation between the 2 answers Would the students whoreported many dates say that they were happier than those with fewerdates?

          Surprisingly no: the correlation between the answers was aboutzero Evidently dating was not what came first to the students’ minds whenthey were asked to assess their happiness

      • How many dates did you have last month?How happy are you these days?
        • The results this time were completely different In this sequence thecorrelation between the number of dates and reported happiness wasabout as high as correlations between psychological measures can get

          The explanation is straightforward and it is a good example ofsubstitution Dating was apparently not the center of these students’ life (inthe first survey happiness and dating were uncorrelated) but when theywere asked to think about their romantic life they certainly had anemotional reaction

          The students who had many dates were reminded of ahappy aspect of their life while those who had n1 were reminded ofl1liness and rejection

          The emotion aroused by the dating question wasstill on every1’s mind when the query about general happiness came up

      The Affect Heuristic

      affect heuristic

      • affect heuristic in which people let their likes and dislikes determine theirbeliefs about the world Your political preference determines thearguments that you find compelling

        If you like the current health policy youbelieve its benefits are substantial and its costs more manageable thanthe costs of alternatives

      The dominance of conclusions over arguments is most pronounced whereemotions are involved

      hawk dove

      • If you are a hawk in your attitude toward othernations you probablthe?” %y think they are relatively weak and likely tosubmit to your country’s will If you are a dove you probably think they arestrong and will not be easily coerced

      The primacy of conclusions does not mean that your mind is completely and that your opinions are wholly immune to information andsensible reasoning Your beliefs and even your emotional attitude maychange (at least a little) when you learn that the risk of an activity youdisliked is smaller than you thought However the information about lowerrisks will also change your view of the benefits (for the better) even ifnothing was said about benefits in the information you received

      Characteristics of System 2

      • it as a more or less acquiescent monitor whichallows considerable leeway to System 1

        System 2as active in deliberate memory search complex computations comparisons planning and choice

        System 2 is ultimately in charge with the ability to resist thesuggestions of System 1

        System slow things down and impose logical analysis

        Self criticism is 1 of the functions of System 2

        In the context of attitudes however System 2 is more of an apologist for the emotions of System 1than a critic of those emotions—an endorser rather than an enforcer

        An active coherence seeking System 1 suggests solutions to anundemanding System 2

        Speaking of Substitution and Heuristics

        “Do we still remember the question we are trying to answer? Orhave we substituted an easier 1?”

        “The question we face is whether this candidate can succeed The question we seem to answer is whether she interviews well Let’s not substitute ”

        “He likes the project so he thinks its costs are low and itsbenefits are high Nice example of the affect heuristic ”

        “We are using last year’s performance as a heuristic to predictthe value of the firm several years from now Is this heuristic goodenough? What other information do we need?”

      Characteristics of System 1

      • generates impressions feelings and inclinations; when endorsed bySystem 2 these become beliefs attitudes and intentions

        operates automatically and quickly with little or no effort and nosense of voluntary control

        can be programmed by System 2 to mobilize attention when aparticular pattern is detected (searc

        executes skilled responses and generates skilled intuitions afteradequate training

        creates a coherent pattern of activated ideas in associative memory

        links a sense of cognitive ease to illusions of truth pleasant feelings and reduced vigilance

        distinguishes the surprising from the normal

        infers and invents causes and intentions

        neglects ambiguity and suppresses doubt

        is biased to believe and confirm

        exaggerates emotional consistency (halo effect)

        focuses on existing evidence and ignores absent evidence(WYSIATI)

        generates a limited set of basic assessments

        represents sets by norms and prototypes does not integrate

        matches intensities across scales (e g size to loudness)

        computes more than intended (mental shotgun)

        sometimes substitutes an easier question for a difficult 1(heuristics)

        is more sensitive to changes than to states (prospect theory)*

        overweights low probabilities

        shows diminishing sensitivity to quantity (psychophysics

        responds more strongly to losses than to gains (loss aversion)*

        frames decision problems narrowly in isolation from 1 another

• Part II Heuristics and Biases
  • Chapter 10 The Law of Small Numbers
    • people who have had no training in statistics are good“intuitive statisticians ”

      A Bias of Confidence Over Doubt

      • In a teleph1 poll of seniors % support the president
      • If you had to summarize the message of this sentence in exactly threewords what would they be?
      • “elderlysupport president ”

      Cause and Chance

      Nowconsider three possible sequences:

      • BBBGGG
      • GGGGGG
      • BGBBGB

      Are the sequences equally likely? The intuitive answer—“of course not!”—is false Because the events are independent and because the outcomesB and G are (approximately) equally likely then any possible sequence ofsix births is as likely as any other Even now that you know this conclusionis true it remains counterintuitive because only the third sequenceappears random

      Random processes produce many sequencesthat convince people that the process is not random after all You can seewhy assuming causality could have had evolutionary advantages

      It is partof the general vigilance that we have inherited from ancestors We areautomatically on the lookout for the possibility that the environment haschanged

      Lions may appear on the plain at random times but it would besafer to notice and respond to an apparent increase in the rate ofappearance of prides of lions even if it is actually due to the fluctuations ofa random process

      The widespread misunderstanding of randomness sometimes hassignificant consequences In our article on representativeness Amos and Icited the statistician William Feller who illustrated the ease with whichpeople see patterns where n1 exists

      My advice wasthat the command should accept that the different outcomes were due toblind luck and that the interviewing of the pilots should stop I reas1dthat luck was the most likely answer that a random search for anonobvious cause was hopeless and that in the meantime the pilots in thesquadron that had sustained losses did not need the extra burden of beingmade to feel that they and their dead friends were at fault

      study of misperceptions of randomness in basketball

      The “fact” that players occasionally acquire a hot hand isgenerally accepted by players coaches and fans The inference isirresistible: a player sinks three or four baskets in a row and you cannothelp forming the causal judgment that this player is now hot with atemporarily increased pr sity to score Players on both teams adapt tothis judgment—teammates are more likely to pass to the hot scorer andthe defense is more likely to doubleteam Analysis of thousands ofsequences of shots led to a disappointing conclusion: there is no suchthing as a hot hand in professional basketball either in shooting from thefield or scoring from the foul line Of course some players are moreaccurate than others but the sequence of successes and missed shotssatisfies all tests of randomness The hot hand is entirely in the eye of thebeholders who are consistently too quick to perceive order and causalityin randomness The hot hand is a massive and widespread cognitiveillusion

      The illusion of pattern affects our lives in many ways off the basketballcourt

      How many good years should you wait before concluding that aninvestment adviser is unusually skilled?

      How many successful acquisitionsshould be needed for a board of directors to believe that the CEO hasextraordinary flair for such deals?

      The simple answer to these questions isthat if you follow your intuition you will more often than not err bymisclassifying a random event as systematic

      We are far too willing toreject the belief that much of what we see in life is random

      Many researchers havesought the secret of successful education by identifying the mostsuccessful schools in the hope of discovering what distinguishes themfrom others

      1 of the conclusions of this research is that the mostsuccessful schools on average are small

      Unfortunately the causal analysis is pointless because the factsare wrong

      If the statisticians who reported to the Gates Foundation hadasked about the characteristics of the worst schools they would havefound that bad schools also tend to be smaller than average

      The truth isthat small schools are not better on average; they are simply morevariable

      If anything say Wainer and Zwerling large schools tend toproduce better results especially in higher grades where a variety ofcurricular options is valuable

      the law of small numbers ispart of 2 larger stories about the workings of the mind

      • The exaggerated faith in small samples is only 1 example of amore general illusion—we pay more attention to the content ofmessages than to information about their reliability and as a resultend up with a view of the world around us that is simpler and morecoherent than the data justify Jumping to conclusions is a safer sportin the world of our imagination than it is in reality

        Statistics produce many observations that appear to beg for causalexplanations but do not lend themselves to such explanations Manyfacts of the world are due to chance including accidents of sampling Causal explanations of chance events are inevitably wrong

      Speaking of the Law of Small Numbers

      • “Yes the studio has had three successful films since the newCEO took over But it is too early to declare he has a hot hand ”

        “I won’t believe that the new trader is a genius before consulting astatistician who could estimate the likelihood of his streak beinga chance event ”

        “The sample of observations is too small to make any inferences Let’s not follow the law of small numbers ”

        “I plan to keep the results of the experiment secret until we have asufficiently large sample Otherwisort?xpere we will face pressureto reach a conclusion prematurely ”

  • Chapter 11 Anchors
    • Amos and I once rigged a wheel of fortune It was marked from to but we had it built so that it would stop only at or We recruitedstudents of the University of Oregon as participants in our experiment 1of us would stand in front of a small group spin the wheel and ask them towrite down the number on which the wheel stopped which of course waseither or We then asked them 2 questions:

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

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

      The spin of a wheel of fortune—even 1 that is not rigged—cannotpossibly yield useful information about anything and the participants in ourexperiment should simply have ignored it But they did not ignore it Theaverage estimates of those who saw and were % and % respectively

      The phenomenon we were studying is so common and so important inthe everyday world that you should know its name: it is an anchoring effect

      anchoring effect

      • It occurs when people consider a particular value for an unknown quantitybefore estimating that quantity What happens is 1 of the most reliableand robust results of experimental psychology: the estimates stay close tothe number that people considered—hence the image of an anchor If youare asked whether Gandhi was more than years old when he died youwill end up with a much higher estimate of his age at death than you wouldif the anchoring question referred to death at

        If you consider how muchyou should pay for a house you will be influenced by the asking price

        Thesame house will appear more valuable if its listing price is high than if it islow even if you are determined to resist the influence of this number; andso on—the list of anchoring effects is endless Any number that you areasked to consider as a possible solution to an estimation problem willinduce an anchoring effect

        We were not the first to observe the effects of anchors but ourexperiment was the first demonstration of its absurdity:

        people’s judgmentswere influenced by an obviously uninformative number

        There was only 1 trouble: Amos and I did not fully agree on thepsychology of the anchoring effect He supported 1 interpretation I likedanother and we never found a way to settle the argument The problemwas finally solved decades later by the efforts of numerous investigators Itis now clear that Amos and I were both right 2 different mechanismsproduce anchoring effects—1 for each system There is a form ofanchoring that occurs in a deliberate process of adjustment an operationof System 2 And there is anchoring that occurs by a priming effect anautomatic manifestation of System 1

      Anchoring as Adjustment

      • adjust and anchor heuristic

        Amos liked the idea of an adjust and anchor heuristic as a strategy forestimating uncertain quantities:

        start from an anchoring number assesswhether it is too high or too low and gradually adjust your estimate bymentally “moving” from the anchor

        To get the idea take a sheet of paper and draw a ½ inch line going up starting at the bottom of the page—without a ruler Now take another sheet and start at the top and draw a line going down until it is ½ inches fromthe bottom Compare the lines

        There is a good chance that your firstestimate of ½ inches was shorter than the second The reason is that youdo not know exactly what such a line looks like; there is a range ofuncertainty You stop near the bottom of the region of uncertainty when youstart from the bottom of the page and near the top of the region when youstart from the top

        Insufficient adjustment neatly explains whyyou are likely to drive too fast when you come off the highway onto citystreets—especially if you are talking with some1 as you drive

        Insufficient adjustment is also a source of tension between exasperatedparents and teenagers who enjoy loud music in their room

        a “well intenti1d child who turns down exceptionally loudmusic to meet a parent’s demand that it be played at a ‘reasonable’volume may fail to adjust sufficiently from a high anchor and may feel thatgenuine attempts at compromise are being overlooked ”

        When did George Washington become president?

        What is the boiling temperature of water at the top of MountEverest?

        You have to adjust in the appropriate direction by findingarguments to move away from the anchor As in the case of the lines youare likely to stop when you are no longer sure you should go farther—at thenear edge of the region of uncertainty

        People adjust less (stay closer to theanchor) when their mental resources are depleted either because theirmemory is loaded with dighdth=igits or because they are slightly drunk Insufficient adjustment is a failure of a weak or lazy System 2

      Anchoring as Priming Effect

      When Amos and I debated anchoring I agreed that adjustment sometimesoccurs but I was uneasy Adjustment is a deliberate and consciousactivity but in most cases of anchoring there is no correspondingsubjective experience Consider these 2 questions

      Was Gandhi more or less than years old when he died?

      How old was Gandhi when he died?

      Did you produce your estimate by adjusting down from ? Probably not but the absurdly high number still affected your estimate My hunch was thatanchoring is a case of suggestion This is the word we use when some1causes us to see hear or feel something by merely bringing it to mind Forexample the question “Do you now feel a slight numbness in your left leg?”always prompts quite a few people to report that their left leg does indeedfeel a little strange

      suggestion

      This is the word we use when some1causes us to see hear or feel something by merely bringing it to mind

      the concept ofsuggestion is no longer obscure:

      suggestion is a priming effect whichselectively evokes compatible evidence You did not believe for a momentthat Gandhi lived for years

      but your associative machinery surelygenerated an impression of a very ancient person

      2 types of anchoring

      • research techniques
      • theoretical ideas

      System 1 triesits best to construct a world in which the anchor is the true number

      associative coherence

      The Anchoring Index

      • Many psychological phenomena can be demonstrated experimentally butfew can actually be measured The effect of anchors is an exception Anchoring can be measured and it is an impressively large effect Somevisitors at the San Francisco Exploratorium were asked the following 2questions:

        Is the height of the tallest redwood more or less than feet?

        What is your best guess about the height of the tallest redwood?

        The “high anchor” in this experiment was feet For other participants the first question referred to a “low anchor” of feet The differencebetween the 2 anchors was feet

        The anchoring effect is not a laboratory curiosity; it can be just as strongin the real world In an experiment conducted some years ago real estateagents were given an opportunity to assess the value of a house that wasactually on the market They visited the house and studied acomprehensive booklet of information that included an asking price Halfthe agents saw an asking price that was substantially higher than the listedprice of the house; the other half saw an asking price that was substantiallylower Each agent gave her opinion about a reasonable buying price forthe house and the lowest price at which she would agree to sell the houseif she owned it The agents were then asked about the factors that hadaffected their judgment Remarkably the asking price was not 1 of thesefactors; the agents took pride in their ability to ignore it They insisted thatthe listing price had no effect on their responses but they were wrong: theanchoring effect was % Indeed the professionals were almost assusceptible to anchoring effects as business school students with no realestateexperience whose anchoring index was % The only differencebetween the 2 groups was that the students conceded that they wereinfluenced by the anchor while the professionals denied that influence

        Powerful anchoring effects are found in decisions that people makeabout m1y such as when they choose how much to contribute al lsdenied to a cause To demonstrate this effect we told participants in theExploratorium study about the environmental damage caused by oiltankers in the Pacific Ocean and asked about their willingness to make anannual contribution “to save offshore Pacific Coast seabirds fromsmall offshore oil spills until ways are found to prevent spills or requiretanker owners to pay for the operation ” This question requires intensitymatching: the respondents are asked in effect to find the dollar amount ofa contribution that matches the intensity of their feelings about the plight ofthe seabirds Some of the visitors were first asked an anchoring question such as “Would you be willing to pay $ … ” before the point blankquestion of how much they would contribute

        When no anchor was menti1d the visitors at the Exploratorium—generally an environmentally sensitive crowd—said they were willing to pay$ on average When the anchoring amount was only $ contributionsaveraged $ When the anchor was a rather extravagant $ thewillingness to pay rose to an average of $

        Anchoring effects are easily observed in online trading where the sameitem is often offered at different “buy now” prices The “estimate” in fine artauctions is also an anchor that influences the first bid

        power of random anchors

        The power of random anchors has been demonstrated in someunsettling ways German judges with an average of more than fifteen yearsof experience on the bench first read a description of a woman who hadbeen caught shoplifting then rolled a pair of dice that were loaded soevery roll resulted in either a or a As soon as the dice came to a stop the judges were asked whether they would sentence the woman to a termin prison greater or lesser in months than the number showing on thedice Finally the judges were instructed to specify the exact prisonsentence they would give to the shoplifter On average those who hadrolled a said they would sentence her to months; those who rolled a saidthif Africa they would sentence her to months; the anchoring effectwas %

      Uses and Abuses of Anchors

      • By now you should be convinced that anchoring effects—sometimes dueto priming sometimes to insufficient adjustment—are everywhere Thepsychological mechanisms that produce anchoring make us far moresuggestible than most of us would want to be And of course there arequite a few people who are willing and able to exploit our gullibility

        Anchoring effects explain why for example arbitrary rationing is aneffective marketing ploy

        arbitrary rationing

        • A few years ago supermarket shoppers in SiouxCity Iowa encountered a sales promotion for Campbell’s soup at about % off the regular price On some days a sign on the shelf said limit of per person On other days the sign said no limit per person

          Shopperspurchased an average of cans when the limit was in force twice as manyas they bought when the limit was removed

          negotiation over the price of ahome

          We see the same strategy at work in the negotiation over the price of ahome when the seller makes the first move by setting the list price As inmany other games moving first is an advantage in single issuenegotiations—for example when price is the only issue to be settledbetween a buyer and a seller As you may have experienced whennegotiating for the first time in a bazaar the initial anchor has a powerfuleffect

          My advice to students when I taught negotiations was that if youthink the other side has made an outrageous proposal you should notcome back with an equally outrageous counteroffer creating a gap that willbe difficult to bridge in further negotiations Instead you should make ascene storm out or threaten to do so and make it clear—to yourself aswell as to the other side—that you will not continue the negotiation with thatnumber on the table

          proposedmore subtle ways to resist the anchoring effect in negotiations

          Theyinstructed negotiators to focus their attention and search their memory forarguments against the anchor

          The instruction to activate System 2 wassuccessful For example the anchoring effect is reduced or eliminatedwhen the second mover focuses his attention on the minimal offer that theopp1nt would accept or on the costs to the opp1nt of failing to reachan agreement

          Before you read this chapter you might havethought that capping awards is certainly good for potential defendants butnow you should not be so sure Consider the effect of capping awards at$ million This rule would eliminate all larger awards but the anchor wouldalso pull up the size of many awards that would otherwise be much smaller It would almost certainly benefit serious offenders and large firms muchmore than small 1s

        Anchoring and the 2 Systems

        • The effects of random anchors have much to tell us about the relationshipbetween System 1 and System 2 Anchoring effects have always beenstudied in tasks of judgment and choice that are ultimately completed bySystem 2

          However System 2 works on data that is retrieved frommemory in an automatic and involuntary operation of System 1

          System 2is therefore susceptible to the biasing influence of anchors that makesome information easier to retrieve

          Furthermore System 2 has no controlover the effect and no knowledge of it The participants who have beenexposed to random or absurd anchors (such as Gandhi’s death at age ) confidently deny that this obviously useless information could haveinfluenced their estimate and they are wrong

          We saw in the discussion of the law of small numbers that a message unless it is immediately rejected as a lie will have the same effect on theassociative system regardless of its reliability The gist of the message isthe story which is based on whatever information is available even if thequantity of the information is slight and its quality is poor

          WYSIATI Whenyou read a story about the heroic rescue of a wounded mountain climber its effect on your associative memory is much the same if it is a newsreport or the synopsis of a film Anchoring results from this associativeactivation Whether the story is true or believable matters little if at all The powerful effect of random anchors is an extreme case of thisphenomenon because a random anchor obviously provides no informationat all

          Earlier I discussed the bewildering variety of priming effects in whichyour thoughts and behavior may be influenced by stimuli to which you payno attention at all and even by stimuli of which you are completelyunaware

          The main moral of priming research is that our thoughts and ourbehavior are influenced much more than we know or want by theenvironment of the moment

          Many people find the priming resultsunbelievable because they do not correspond to subjective experience Many others find the results upsetting because they threaten the subjectivesense of agency and autonomy If the content of a screen saver on anirrelevant computer can affect your willingness to help strangers withoutyour being aware of it how free are you? Anchoring effects are threateningin a similar way

          You are always aware of the anchor and even payattention to it but you do not know how it guides and constrains yourthinking because you cannot imagine how you would have thought if theanchor had been different (or absent) However you should assume thatany number that is on the table has had an anchoring effect on you and ifthe stakes are high you should mobilize yourself (your System 2) to combatthe effect

        Speaking of Anchors

        • “The firm we want to acquire sent us their business plan with therevenue they expect We shouldn’t let that number influence ourthinking Set it aside ”

          “Plans are best case scenarios Let’s avoid anchoring on planswhen we forecast actual outcomes Thinking about ways the plancould go wrong is 1 way to do it ”

          “Our aim in the negotiation is to get them anchored on thisnumber ”

          “The defendant’s lawyers put in a frivolous reference in which theymenti1d a ridiculously low amount of damages and they gotthe judge anchored on it!”

  • Chapter 12 The Science of Availability
    • The Science of Availability

      availabilityheuristic

      • We thought of that heuristic when we asked ourselves whatpeople actually do when they wish to estimate the frequency of a category such as “people who divorce after the age of ” or “dangerous plants ”

        The answer was straightforward: instances of the class will be retrievedfrom memory and if retrieval is easy and fluent the category will be judgedto be large

        availability heuristic as the process of judgingfrequency by “the ease with which instances come to mind ”

      think of the number ofwords that can be constructed from the 2 sets of letters below

      • XUZONLCJM
      • TAPCERHOB

      You knew almost immediately without generating any instances that 1set offers far more possibilities than the other probably by a factor of ormore Similarly you do not need to retrieve specific news stories to have agood idea of the relative frequency with which different countries haveappeared in the news during the past year (Belgium China France Congo Nicaragua Romania…)

      The availability heuristic like other heuristics of judgment substitutes1 question for another: you wish to estimate the size se ost c d of acategory or the frequency of an event but you report an impression of theease with which instances come to mind

      A salient event that attracts your attention will be easily retrieved frommemory Divorces among Hollywood celebrities and sex scandalsamong politicians attract much attention and instances will comeeasily to mind You are therefore likely to exaggerate the frequency ofboth Hollywood divorces and political sex scandals

      A dramatic event temporarily increases the availability of itscategory A plane crash that attracts media coverage will temporarilyalter your feelings about the safety of flying Accidents are on yourmind for a while after you see a car burning at the side of the road and the world is for a while a more dangerous place

      Personal experiences pictures and vivid examples are moreavailable than incidents that happened to others or mere words orstatistics A judicial error that affects you will undermine your faith inthe justice system more than a similar incident you read about in anewspaper

      biases

      • Resisting this large collection of potential availability biases is possible but tiresome

        You must make the effort to reconsider your impressions andintuitions by asking such questions as “Is our belief that theft s byteenagers are a major problem due to a few recent instances in ourneighborhood?”

        “Could it be that I feel no need to get a flu shot becausen1 of my acquaintances got the flu last year?”

        Maintaining 1’svigilance against biases is a chore—but the chance to avoid a costlymistake is sometimes worth the effort

      awareness ofyour own biases

      1 of the best known studies of availability suggests that awareness ofyour own biases can contribute to peace in marriages and probably inother joint projects

      availability bias

      • In a famous study spouses were asked “How largewas your personal contribution to keeping the place tidy in percentages?”They also answered similar questions about “taking out the garbage ”“initiating social engagements ” etc Would the self estimated contributionsadd up to % or more or less? As expected the self assessedcontributions added up to more than %

        The explanation is a simpleavailability bias: both spouses remember their own individual efforts andcontributions much more clearly than those of the other and the differencein availability leads to a difference in judged frequency

        The bias is notnecessarily self serving: spouses also overestimated their contribution tocausing quarrels although to a smaller extent than their contributions tomore desirable outcomes The same bias contributes to the commonobservation that many members of a collaborative team feel they haved1 more than their share and also feel that the others are not adequatelygrateful for their individual contributions

      The Psychology of Availability

      • A major advance in the understanding of the availability heuristic occurredin the early s when a group of German psychologists led by NorbertSchwarz raised an intriguing question: How will people’s impressions ofthe frequency of a category be affected by a requirement to list a specifiednumber of instances? Imagine yourself a subject in that experiment
        • First list six instances in which you behaved assertively
        • Next evaluate how assertive you are

        2 different routes

        • the number of instances retrieved
        • the ease with which they come to mind

        paradoxical results

        • believe that they use their bicycles less often after recalling manyrather than few instances
        • are less confident in a choice when they are asked to produce morearguments to support it
        • are less confident that an event was avoidable after listing moreways it could have been avoided
        • are less impressed by a car after listing many of its advantages

        ingenious way to exploit the availabilitybias

        • He asked different groups of students to list ways to improve thecourse and he varied the required number of improvements As expected the students who listed more ways to improve the class rated it higher!

        conditions in which people “go with theflow”

        • when they are engaged in another effortful task at the same time

          when they are in a good mood because they just thought of a happyepisode in their life

          if they score low on a depression scale

          if they are knowledgeable novices on the topic of the task in contrastto true experts

          when they score high on a scale of faith in intuition

          if they are (or are made to feel) powerful

          “I don’t spend a lot of time taking polls aroundthe world to tell me what I think is the right way to act I’ve just got to knowhow I feel” (Georgee e the w W Bush November )

        They go on toshow that reliance on intuition is only in part a personality trait Merelyreminding people of a time when they had power increases their apparenttrust in their own intuition

        Speaking of Availability

        • “Because of the coincidence of 2 planes crashing last month she now prefers to take the train That’s silly The risk hasn’t reallychanged; it is an availability bias ”

          “He underestimates the risks of indoor pollution because thereare few media stories on them That’s an availability effect Heshould look at the statistics ”

          “She has been watching too many spy movies recently so she’sseeing conspiracies everywhere ”

          “The CEO has had several successes in a row so failure doesn’tcome easily to her mind The availability bias is making heroverconfident ”

  • Chapter 13 Availability Emotion and Risk
    • the study of risk and insurance noticed that availabilityeffects help explain the pattern of insurance purchase and protective actionafter disasters

      Availability and Affect

      public perceptions of risks

      • Strokes cause almost twice as many deaths as all accidentscombined but % of respondents judged accidental death to bemore likely

        Tornadoes were seen as more frequent killers than asthma althoughthe latter cause times more deaths

        Death by lightning was judged less likely than death from botulismeven though it is times more frequent

        Death by disease is times as likely as accidental death but the2 were judged about equally likely

        Death by accidents was judged to be more than times morelikely than death by diabetes but the true ratio is :

      The lesson is clear: estimates of causes of death are warped by mediacoverage

      • The coverage is itself biased toward novelty and poignancy

        Themedia do not just shape what the public is interested in but also areshaped by it

        Editors cannot ignore the public’s demands that certaintopics and viewpoints receive extensive coverage

        Unusual events (suchas botulism) attract disproportionate attention and are consequentlyperceived as less unusual than they really are

        The world in our heads isnot a precise replica of reality; our expectations about the frequency ofevents are distorted by the prevalence and emotional intensity of themessages to which we are exposed

        The estimates of causes of death are an almost direct representation ofthe activation of ideas in associative memory and are a good example ofsubstitution

      deeper insight

      • the ease with which ideas of various risks come to mind andthe emotional reactions to these risks are inextricably linked

        Frighteningthoughts and images occur to us with particular ease and thoughts ofdanger that are fluent and vivid exacerbate fear

      affectheuristic

      an affectheuristic in which people make judgments and decisions by consultingtheir emotions

      Do I like it?

      Do I hate it?

      How strongly do I feel about it?

      affect heuristic

      • An inability to be guided by a “healthy fear”of bad consequences is a disastrous flaw

        people form opinions and make choicesthat directly express their feelings and their basic tendency to approach oravoid often without knowing that they are doing so

        The affect heuristic isan instance of substitution in which the answer to an easy question (Howdo I feel about it?) serves as an answer to a much harder question (Whatdo I think about it?)

        Howdo I feel about it?

        Whatdo I think about it?

        Antonio Damasio

        people’s emotional evaluations of outcomes and the bodily states and theapproach and avoidance tendencies associated with them all play acentral role in guiding decision making

        Damasio and his colleagues haveobserved that people who do not display the appropriate emotions beforethey decide sometimes because of brain damage also have an impairedability to make good decisions

        The affect heuristicsimplifies our lives by creating a world that is much tidier than reality

      The Public and the Experts

      Mr and Ms Citizen Common Biases

      • guided by emotion rather than byreason
      • easily swayed by trivial details
        • inadequately sensitive todifferences between low and negligibly low probabilities

      Risk is objective Challenge

      “Risk” does not exist “out there ” independent of our minds andculture waiting to be measured

      Human beings have invented theconcept of “risk” to help them understand and cope with thedangers and uncertainties of life

      Although these dangers arereal there is no such thing as “real risk” or “objective risk ”

      availabilitycascade

      mechanism through which biases flow into policy: the availabilitycascade They comment that in the social context “all heuristics are equal but availability is more equal than the others ”

      the importance of an idea isoften judged by the fluency (and emotional charge) with which that ideacomes to mind

      An availability cascade is a self sustaining chain of events which maystart from media reports of a relatively minor event and lead up to publicpanic and large scale government action

      On some occasions a mediastory about a risk catches the attention of a segment of the public whichbecomes aroused and worried

      The Alar tale illustrates a basic limitation in the ability of our mind to dealwith small risks: we either ignore them altogether or give them far too muchweight—nothing in between

      “probability neglect”

      • Every parent who has stayed up waiting for ateenage daughter who is late from a party will recognize the feeling Youmay know that there is really (almost) nothing to worry about but youcannot help images of disaster from coming to mind

        the amount of concern is not adequately sensitive to the probabilityof harm; you are imagining the numerator—the tragic story you saw on thenews—and not thinking about the denominator

        The combination ofprobability neglect with the social mechanisms of availability cascadesinevitably leads to gross exaggeration of minor threats sometimes withimportant consequences

      In today’s world terrorists are the most significant practiti1rs of the artof inducing availability cascades With a few horrible exceptions such as the number of casualties from terror attacks is very small relative toother causes of death Even in countries that have been targets ofintensive terror campaigns such as Israel the weekly number of casualtiesalmost never came close to the number of traffic deaths The difference isin the availability of the 2 risks the ease and the frequency with whichthey come to mind Gruesome images endlessly repeated in the media cause every1 to be on edge

      As I know from experience it is difficult toreason 1self into a state of complete calm Terrorism speaks directly toSystem 1

      Democracy is inevitably messy in part because the availabilityand affect heuristics that guide citizens’ beliefs and attitudes are inevitablybiased even if they generally point in the right direction

      Psychology shouldinform the design of risk policies that combine the experts’ knowledge withthe public’s emotions and intuitions

      Speaking of Availability Cascades

      • “She’s raving about an innovation that has large benefits and nocosts I suspect the affect heuristic ”

        “This is an availability cascade: a n1vent that is inflated by themedia and the public until it fills our TV screens and becomes allany1 is talking about ”

  • Chapter 14 Tom W’s Specialty
    • Tom W’s Specialty

      simple puzzle

      • Tom W is a graduate student at the main university in your state Please rank the following nine fields of graduate specialization inorder of the likelihood that Tom W is now a student in each ofthese fields Use for the most likely for the least likely

        business administration

        computer science

        engineering

        humanities and education

        law

        medicine

        library science

        physical and life sciences

        social science and social work

      personality sketch of Tom W

      • Tom W is of high intelligence although lacking in true creativity He has a need for order and clarity and for neat and tidy systemsin which every detail finds its appropriate place His writing israther dull and mechanical occasionally enlivened by somewhatcorny puns and flashes of imagination of the sci fi type He has astrong drive for competence He seems to have little feel and littlesympathy for other people and does not enjoy interacting withothers Self centered he n1theless has a deep moral sense

        Now please take a sheet of paper and rank the nine fields ofspecialization listed below by how similar the description of TomW is to the typical graduate student in each of the following fields Use for the most likely and for the least likely

      Predicting by Representativeness

      rank the fields of specialization inorder of the likelihood that Tom W is now a graduate student in each ofthese fields

      Substitution was perfect in this case: there wasno indication that the participants did anything else but judgerepresentativeness The question about probability (likelihood) wasdifficult but the question about similarity was easier and it was answeredinstead

      judgments of similarity

      The question about probability (likelihood) wasdifficult but the question about similarity was easier and it was answeredinstead This is a serious mistake because judgments of similarity andprobak tbility are not constrained by the same logical rules

      definitions ofprobability

      • Logicians and statisticians have developed competing definitions ofprobability all very precise

        have developed competing definitions ofprobability all very precise For laypeople however probability (asynonym of likelihood in everyday language) is a vague notion related touncertainty pr sity plausibility and surprise

      The vagueness is notparticular to this concept nor is it especially troublesome We know moreor less what we mean when we use a word such as democracy or beautyand the people we are talking to understand more or less what weintended to say

      A question about probability or likelihood activates a mentalshotgun evoking answers to easier questions

      1 of the easy answers isan automatic assessment of representativeness—routine in understandinglanguage

      The (false) statement that “Elvis Presley’s parents wanted him tobe a dentist” is mildly funny because the discrepancy between the imagesof Presley and a dentist is detected automatically

      System 1 generates animpression of similarity without intending to do so The representativenessheuristic is involved when some1 says “She will win the election; you cansee she is a winner” or “He won’t go far as an academic; too manytattoos ” We rely on representativeness when we judge the potentialleadership of a candidate for office by the shape of his chin or theforcefulness of his speeches

      The Sins of Representativeness

      • Judging probability byals representativeness has important virtues: theintuitive impressions that it produces are often—indeed usually—moreaccurate than chance guesses would be

        On most occasions people who act friendly are in fact friendly

        A professional athlete who is very tall and thin is much more likely toplay basketball than football

        People with a PhD are more likely to subscribe to The New YorkTimes than people who ended their education after high school

        Young men are more likely than elderly women to drive aggressively

        In all these cases and in many others there is some truth to thestereotypes that govern judgments of representativeness and predictionsthat follow this heuristic may be accurate

        In other situations thestereotypes are false and the representativeness heuristic will mislead especially if it causes people to neglect base rate information that points inanother direction Even when the heuristic has some validity exclusivereliance on it is associated with grave sins against statistical logic

        1 sin of representativeness is an excessive willingness to predict theoccurrence of unlikely (low base rate) events Here is an example: you seea person reading The New York Times on the New York subway Which ofthe following is a better bet about the reading stranger?

        • She has a PhD
        • She does not have a college degree

        enhanced activationof System 2 caused a significant improvement of predictive accuracy inthe Tom W problem

        puff frown

        • experiment combined the old problem with amodern variation of cognitive fluency Half the students were told to puff outtheir cheeks during the task while the others were told to frown Frowning as we have seen generally increases the vigilance of System 2 andreduces both overconfidence and the reliance on intuition The studentswho puffed out their cheeks (an emotionally neutral expression) replicatedthe original results: they relied exclusively on representativeness andignored the base rates As the authors had predicted however thefrowners did show some sensitivity to the base rates This is an instructivefinding

        When an incorrect intuitive judgment is made System 1 and System 2should both be indicted System 1 suggested the incorrect intuition andSystem 2 endorsed it and expressed it in a judgment

        The second sin of representativeness is insensitivity to the quality ofevidence

        let your judgments ofprobability stay close to the base rate

        The correct answer to the Tom W puzzle is that you should stay veryclose to your prior beliefs slightly reducing the initially high probabilities ofwell populated fields (humanities and education; social science and socialwork) and slightly raising the low probabilities of rare specialties (libraryscience computer science)

        You are not exactly where you would be if youhad known nothing at all about Tom W but the little evidence you have isnot trus2rthy so the base rates should dominate your estimates

      How to Discipline Intuition

      Your probability that it will rain tomorrow is your subjective degree of belief but you should not let yourself believe whatever comes to your mind

      To beuseful your beliefs should be constrained by the logic of probability So ifyou believe that there is a % chance plethat it will rain sometimetomorrow you must also believe that there is a % chance it will not raintomorrow and you must not believe that there is a % chance that it willrain tomorrow morning

      relevant “Bayesean rules”

      • The relevant “rules” for cases such as the Tom W problem are providedby Bayesian statistics

        the logic of how people should change their mind in the light ofevidence

        Bayes’s rule specifies how prior beliefs (in the examples of thischapter base rates) should be combined with the diagnosticity of theevidence the degree to which it favors the hypothesis over the alternative

        Bayesian reasoning

        base rates matter even in the presence of evidenceabout the case at hand

        intuitive impressions of the diagnosticity of evidence are oftenexaggerated

        The essentialkeys to disciplined Bayesian reasoning

        • Anchor your judgment of the probability of an outcome on a plausiblebase rate
        • Question the diagnosticity of your evidence

      Speaking of Representativeness

      • “The lawn is well trimmed the receptionist looks competent andthe furniture is attractive but this doesn’t mean it is a wellmanagedcompany I hope the board does not go byrepresentativeness ”

        “This start up looks as if it could not fail but the base rate ofsuccess in the industry is extremely low How do we know thiscase is different?”

  • Chapter 15 Linda: Less is More
    • heuristics in judgment and oftheir incompatibility with logic

      Linda is thirty 1 years old single outspoken and very bright She majored in philosophy As a student she was deeplyconcerned with issues of discrimination and social justice andalso participated in antinuclear demonstrations

      The Linda problem is similar but with a twist Possible Scenarios

      • Linda is a teacher in elementary school
      • Linda works in a bookstore and takes yoga classes
      • Linda is active in the feminist movement
      • Linda is a psychiatric social worker
      • Linda is a member of the League of Women Voters
      • Linda is a bank teller
      • Linda is an insurance salesperson
      • Linda is a bank teller and is active in the feminist movement

      Which alternative is more probable?

      • Linda is a bank teller
      • Linda is a bank teller and is active in the feminist movement

      fallacy

      • The word fallacy is used in general when people fail to apply a logicalrule that is obviously relevant

      conjunction fallacy

      conjunction fallacy which people commit when they judge a conjunction of2 events (here bank teller and feminist) to be more probable than 1 ofthe events (bank teller) in a direct comparison

      judgments ofrepresentativeness

      The judgments of probability that our respondents offered in both theTom W and Linda problems corresponded precisely to judgments ofrepresentativeness (similarity to stereotypes)

      Representativenessbelongs to a cluster of closely related basic assessments that are likely tobe generated together The most representative outcomes combine withthe personality description to produce the most coherent stories The mostcoherent stories are not necessarily the most probable but they areplausible and the notions of coherence plausibility and probability areeasily confused by the unwary

      uncritical substitution of plausibility for probability

      • A massive flood somewhere in North America next year in whichmore than people drown

        An earthquake in California sometime next year causing a floodin which more than people drown

        The California earthquake scenario is more plausible than the NorthAmerica scenario although its probability is certainly smaller

      Less Is More Sometimes Even In Joint Evaluation

      less is more

      • By removing items from Set A ( of them intact) its value is improved

      baseball cards

      • He aucti1d sets of ten high valuecards and identical sets to which three cards of modest value wereadded As in the dinnerware experiment the larger sets were valued morethan the smaller 1s in joint evaluation but less in single evaluation Fromthe perspective of economic theory this result is troubling: the economicvalue of a dinnerware set or of a collection of baseball cards is a sum likevariable Adding a positively valued item to the set can only increase itsvalue

        System 1 averages insteadof adding

      four possible outcomes

      Björn Borg wasthe dominant tennis player of the day when the study was conducted

      • A Borg will win the match
      • B Borg will lose the first set
      • C Borg will lose the first set but win the match
      • D Borg will win the first set but lose the match

      “How many of the participants

      Why is the question “How many of the participants…” so mucheasier than “What percentage…”? A likely explanation is that the referenceto individuals brings a spatial representation to mind Imagine that alarge number of people are instructed to sort themselves into groups in aroom: “Those whose names begin with the letters A to L are told to gatherin the front left corner ” They are then instructed to sort themselves further The relation of inclusion is now obvious and you can see that individualswhose name begins with C will be a subset of the crowd in the front leftcorner

      In the medical survey question heart attack victims end up in acorner of the room and some of them are less than years old Notevery1 will share this particular vivid imagery but many subsequentexperiments have shown that the frequency representation as it is known makes it easy to appreciate that 1 group is wholly included in the other

      The solution to the puzzle appears to be that a question phrased as “howmany?” makes you think of individuals but the same question phrased as“what percentage?” does not

      What have we learned from these studies about the workings of System?

      System 2 is not impressivelyalert

      The undergraduates and graduate students who participated in ourthastudies of the conjunction fallacy certainly “knew” the logic of Venndiagrams but they did not apply it reliably even when all the relevantinformation was laid out in front of them

      The absurdity of the less is morepattern was obvious in Hsee’s dinnerware study and was easilyrecognized in the “how many?” representation but it was not apparent tothe thousands of people who have committed the conjunction fallacy in theoriginal Linda problem and in others like it

      The laziness of System 2 is part of the story

      followlogic

      not to answer until they were sure of their answer

      conjunction fallacy

      The laziness of System 2 is part of the story If their next vacation haddepended on it and if they had been given indefinite time and told to followlogic and not to answer until they were sure of their answer I believe thatmost of our subjects would have avoided the conjunction fallacy

      The laziness of System 2 is an important fact of life

      theobservation that representativeness can block the application of anobvious logical rule is also of some interest

  • Chapter 16 Causes Trump Statistics
    • Causes Trump Statistics

      A cab was involved in a hit and run accident at night 2 cab companies the Green and the Blue operate in the city You are given the following data:

      • % of the cabs in the city are Green and % are Blue

        A witness identified the cab as Blue The court tested the reliability ofthe witness under the circumstances that existed on the night of theaccident and concluded that the witness correctly identified each 1of the 2 colors % of the time and failed % of the time

        What is the probability that the cab involved in the accident wasBlue rather than Green?

      2 items ofinformation:

      • a base rate
      • the imperfectly reliable testimony of a witness

      Causal Stereotypes

      variation of the same story

      You are given the following data:

      The 2 companies operate the same number of cabs but Greencabs are involved in % of accidents

      The information about the witness is as in the previous version

      In the second version in contrast the drivers of Green cabs cause morethan times as many accidents as the Blue cabs do The conclusion isimmediate: the Green drivers must be a collection of reckless madmen!You have now formed a stereotype of Green recklessness which you applyto unknown individual drivers in the company

      The stereotype is easilyfitted into a causal story because recklessness is a causally relevant factabout individual cabdrivers In this version there are 2 causal stories thatneed to be combined or reconciled The first is the hit and run whichnaturally evokes the idea that a reckless Green driver was responsible The second is the witness’s testimony which strongly suggests the cabwas Blue The inferences from the 2 stories about the color of the car arecontradictory and approximately cancel each other

      2 types of base rates

      • Statistical base
        • Statistical baserates are facts about a population to which a case belongs but they arenot relevant to the individual case
      • Causal base rates
        • Causal base rates change your view ofhow the individual case came to be

      The 2 types of base rateinformation are treated differently:

      • Statistical base rates are generally underweighted and sometimesneglected altogether when specific information about the case athand is available

        Causal base rates are treated as information about the individualcase and are easily combined with other case specific information

      2 examples

      • Most of the graduates of this inner city school go to college
      • Interest in cycling is widespread in France

      These statements are readily interpreted as setting up a pr sity inindividual members of the group and they fit in a causal story Manygraduates of this particular inner city school are eager and able to go tocollege presumably because of some beneficial features of life in thatschool There are forces in French culture and social life that cause manyFrenchmen to take an interest in cycling You will be reminded of thesefacts when you think about the likelihood that a particular graduate of theschool will attend college or when you wonder whether to bring up the Tourde France in a conversation with a Frenchman you just met

      Stereotyping

      • Stereotyping is a bad word in our culture but in my usage it is neutral 1of the basic characteristics of System 1 is that it represents categories asnorms and prototypical exemplars

        This is how we think of horses refrigerators and New York police officers; we hold in memory arepresentation of 1 or more “normal” members of each of thesecategories

        When the categories are social these representations arecalled stereotypes

        Some stereotypes are perniciously wrong and hostilestereotyping can have dreadful consequences but the psychological factscannot be avoided:

        stereotypes both correct and false are how we thinkof categories

        The social norm against stereotyping including the opposition toprofiling has been highly beneficial in creating a more civilized and moreequal society It is useful to remember however that neglecting validstereotypes inevitably results in suboptimal judgments Resistance tostereotyping is a laudable moral position but the simplistic idea that theresistance is costless is wrong The costs are worth paying to achieve abetter society but denying that the costs exist while satisfying to the souland politically correct is not scientifically defensible Reliance on the affectheuristic is common in politically charged arguments The positions wefavor have no cost and those we oppose have no benefits We should beable to do better

      Causal Situations

      • In his experiment Ajzen showed his participantsbrief vignettes describing some students who had taken an exam at Yaleand asked the participants to judge the probability that each student hadpassed the test The manipulation of causal bs oase rates wasstraightforward: Ajzen told 1 group that the students they saw had beendrawn from a class in which % passed the exam and told another groupthat the same students had been in a class in which only % passed Thisis a powerful manipulation because the base rate of passing suggests theimmediate inference that the test that only % passed must have beenbrutally difficult

        The difficulty of a test is of course 1 of the causalfactors that determine every student’s outcome As expected Ajzen’ssubjects were highly sensitive to the causal base rates and every studentwas judged more likely to pass in the high success condition than in thehigh failure rate

        As expected the explicitly stated base rates had some effects onjudgment but they had much less impact than the statistically equivalentcausal base rates

        System 1 can deal with stories in which the elementsare causally linked but it is weak in statistical reasoning

      Can Psychology be Taught?

      • The classicexperiment I describe next shows that people will not draw from base rateinformation an inference that conflicts with other beliefs It also supports theuncomfortable conclusion that teaching psychology is mostly a waste oftime

        Most of us think ofourselves as decent people who would rush to help in such a situation andwe expect other decent people to do the same

        Most of us think ofourselves as decent people who would rush to help in such a situation andwe expect other decent people to do the same

        The point of theexperiment of course was to show that this expectation is wrong Evennormal decent people do not rush to help when they expect others to takeon the unpleasantness of dealing with a seizure

        Are you willing to endorse the following statement? “When I read theprocedure of the helping experiment I thought I would come to thestranger’s help immediately as I probably would if I found myself al1 witha seizure victim I was probably wrong If I find myself in a situation in whichother people have an opportunity to help I might not step forward Thepresence of others would reduce my sense of personal responsibility morethan I initially thought ” This is what a teacher of psychology would hope youwould learn Would you have made the same inferences by yourself?

      diffusion of responsibility

      • The lessonstudents are meant to take away is that some potent feature of thesituation such as the diffusion of responsibility induces normal and decentpeople such as them to behave in a surprisingly unhelpful way

        Changing 1’s mind about human nature is hard work and changing1’s mind for the worse about 1self is even harder

        To teach students any psychology they did not know before you mustsurprise them But which surprise will do? Nisbett and Borgida found thatwhen they presented their students with a surprising statisticis al fact thestudents managed to learn nothing at all

        But when the students weresurprised by individual cases—2 nice people who had not helped—theyimmediately made the generalization and inferred that helping is moredifficult than they had thought Nisbett and Borgida summarize the resultsin a memorable sentence:

        Subjects’ unwillingness to deduce the particular from the generalwas matched only by their willingness to infer the general from theparticular

      Speaking of Causes and Statistics

      “We can’t assume that they will really learn anything from merestatistics Let’s show them 1 or 2 representative individualcases to influence their System 1 ”

      “No need to worry about this statistical information being ignored On the contrary it will immediately be used to feed a stereotype ”

  • Chapter 17 Regression to the Mean
    • Regression to the Mean
      • rewards for improved performance work better than punishment ofmistakes

        regression to the mean

        regression to the mean which in that case wasdue to random fluctuations in the quality of performance Naturally hepraised only a cadet whose performance was far better than average

        Butthe cadet was probably just lucky on that particular attempt and thereforelikely to deteriorate regardless of whether or not he was praised Similarly the instructor would shout into a cadet’s earph1s only when the cadet’sperformance was unusually bad and therefore likely to improve regardlessof what the instructor did The instructor had attached a causalinterpretation to the inevitable fluctuations of a random process

        I pointed out to the instructors that what theysaw on the board coincided with what we had heard about theperformance of aerobatic maneuvers on successive attempts: poorperformance was typically followed by improvement and goodperformance by deterioration without any help from either praise orpunishment

        The discovery I made on that day was that the flight instructors weretrapped in an unfortunate contingency: because they punished cadetswhen performance was poor they were mostly rewarded by a subsequentimprovement even if punishment was actually ineffective Furthermore theinstructors were not al1 in that predicament I had stumbled onto asignificant fact of the human condition: the feedback to which life exposesus is perverse Because we tend to be nice to other people when theyplease us and nasty when they do not we are statistically punished forbeing nice and rewarded for being nasty

    • Talent and Luck
      • “favorite equation ”

        success = talent + luck

        great success = a little more talent + a lot of luck

        “Sports Illustrated jinx ”

        • Regression effects are ubiquitous and so are misguided causal storiesto explain them A well known example is the “Sports Illustrated jinx ” theclaim that an athlete whose picture appears on the cover of the magazineis doomed to perform poorly the following season Overconfidence and thepressure of meeting high expectations are often offered as explanations But there is a simpler account of the jinx: an athlete who gets to be on thecover of Sports Illustrated must have performed exceptionally well in thepreceding season probably with the assistance of a nudge from luck—andluck is fickle

          the results are combined for thefinal score I was startled to hear the sportscaster’s comments whileathletes were preparing for their second jump: “Norway had a great firstjump; he will be tense hoping to protect his lead and will probably doworse” or “Sweden had a bad first jump and now he knows he has nothingto lose and will be relaxed which should help him do better ”

        Thecommentator had obviously detected regression to the mean and hadinvented a causal story for which there was no evidence The story itselfcould even be true Perhaps if we measured the athletes’ pulse beforeeach jump we might find that they are indeed more relaxed after a bad firstjump And perhaps not The point to remember is that the change from thefirst to the second jump does not need a causal explanation It is amathematically inevitable consequence of the fact that luck played a role inthe outcome of the first jump Not a very satisfactory story—we would allprefer a causal account—but that is all there is

    • Understanding Regression
      • Regression to the mean was discovered and named late in thenineteenth century by Sir Francis Galton a half cousin of Charles Darwinand a renowned polymath

        “Regression towards Mediocrity inHereditary Stature ”

        which reports measurements of size in successivegenerations of seeds and in comparisons of the height of children to theheight of their parents He writes about his studies of seeds:

        They yielded results that seemed very noteworthy and I usedthem as the basis of a lecture before the Royal Institution onFebruary th It appeared from these experiments that theoffspring did not tend to resemble their parent seeds in size butto be always more mediocre than they—to be smaller than theparents if the parents were large; to be larger than the parents ifthe parents were very small…The experiments showed furtherthat the mean filial regression towards mediocrity was directlyproportional to the parental deviation from it

        Regression effects can be found wherever we look but wedo not recognize them for what they are They hide in plain sight It tookGalton several years to work his way from his discovery of filial regressionin size to the broader notion that regression inevitably occurs when thecorrelation between 2 measures is less than perfect and he needed thehelp of the most brilliant statisticians of his time to reach that conclusion

        examples of coefficients

        • The correlation between the size of objects measured with precisionin English or in metric units is Any factor that influences 1measure also influences the other; % of determinants areshared
          • The correlation between self reported height and weight among adultAmerican males is If you included women and children thecorrelation would be much higher because individuals’ gender andage influence both their height ann wd their weight boosting therelative weight of shared factors

        The correlation between SAT scores and college GPA isapproximately However the correlation between aptitude testsand success in graduate school is much lower largely becausemeasured aptitude varies little in this selected group If every1 hassimilar aptitude differences in this measure are unlikely to play alarge role in measures of success

        The correlation between income and education level in the UnitedStates is approximately

        The correlation between family income and the last four digits of theirph1 number is

        correlation andregression are not 2 concepts—they are different perspectives on thesame concept

        The general rule is straightforward but has surprisingconsequences:

        whenever the correlation between 2 scores is imperfect there will be regression to the mean

        Highly intelligent women tend to marry men who are lessintelligent than they are

        You can get a good conversation started at a party by asking for anexplanation and your friends will readily oblige Even people who have hadsome exposure to statistics will spontaneously interpret the statement incausal terms Some may think of highly intelligent women wanting to avoidthe competition of equally intelligent men or being forced to compromisein their choice of spouse because intelligent men do not want to competewith intelligent women

        consider this statement

        • The correlation between the intelligence scores of spouses isless than perfect
          • This statement is obviously true and not interesting at all Who wouldexpect the correlation to be perfect? There is nothing to explain But thestatement you found interesting and the statement you found trivial arealgebraically equivalent If the correlation between the intelligence ofspouses is less than perfect (and if men and women on average do notdiffer in intelligence) then it is a mathematical inevitability that highlyintelligent women will be married to husbands who are on average lessintelligent than they are (and vice versa of course) The observedregression to the mean cannot be more interesting or more explainablethan the imperfect correlation

        our mind isstrongly biased toward causal explanations and does not deal well with“mere statistics ”

        When our attention is called to an event associativememory will look for its cause—more precisely activation will automaticallyspread to any cause that is already stored in memory

        difficulties with the concept of regression originate with both System 1and System 2

        • Depressed children treated with an energy drink improvesignificantly over a three month period

          I made up this newspaper headline but the fact it reports is true: if youtreated a group of depressed children for some time with an energy drink they would show a clinically significant improvement It is also the case thatdepressed children who spend some time standing on their head or hug acat for twenty minutes a day will also show improvement Most readers ofsuch headlines will automatically infer that the energy drink or the cathugging caused an improvement but this conclusion is completelyunjustified

          Depressed children are an extreme group they are moredepressed than most other children—and extreme groups regress to themean over time

        Judgment in Managerial DecisionMaking:

        • You are the sales forecaster for a department store chain Allstores are similar in size and merchandise selection but theirsales differ because of location competition and randomfactors You are given the results for and asked to forecastsales for You have been instructed to accept the overallforecast of economists that sales will increase overall by % How would you complete the following table?

        Speaking of Regression to Mediocrity

        • “She says experience has taught her that criticism is moreeffective than praise What she doesn’t understand is that it’s alldue to regression to the mean ”

          “Perhaps his second interview was less impressive than thefirst because he was afraid of disappointing us but more likely itwas his first that was unusually good ”

          “Our screening procedure is good but not perfect so we shouldanticipate regression We shouldn’t be surprised that the verybest candidates often fail to meet our expectations ”

  • Chapter 18 Taming Intuitive Predictions
    • Taming Intuitive Predictions
      • Life presents us with many occasions to forecast Economists forecastinflation and unemployment financial analysts forecast earnings militaryexperts predict casualties venture capitalists assess profitability publishers and producers predict audiences contractors estimate the timerequired to complete projects chefs anticipate the demand for the disheson their menu engineers estimate the amount of concrete needed for abuilding fireground commanders assess the number of trucks that will beneeded to put out a fire In our private lives we forecast our spouse’sreaction to a proposed move or our own future adjustment to a new job

        Some predictive judgments such as those made by engineers relylargely on look up tables precise calculations and explicit analyses ofoutcomes observed on similar occasions

    • Nonregressive Intuitions
      • Julie is currently a senior in a state university She read fluentlywhen she was four years old What is her grade point average(GPA)?

        People who are familiar with the American educational scene quicklycome up with a number which is often in the vicinity of or Howdoes this occur? Several operations of System 1 are involved

        A causal link between the evidence (Julie’s reading) and the target ofthe prediction (her GPA) is sought The link can be indirect In thisinstance early reading and a high GDP are both indications ofacademic talent Some connection is necessary You (your System) would probably reject as irrelevant a report of Julie winning a flyfishing competitiowhired D=n or excelling at weight lifting in highschool The process is effectively dichotomous We are capable ofrejecting information as irrelevant or false but adjusting for smallerweaknesses in the evidence is not something that System 1 can do As a result intuitive predictions are almost completely insensitive tothe actual predictive quality of the evidence When a link is found asin the case of Julie’s early reading WY SIATI applies: yourassociative memory quickly and automatically constructs the bestpossible story from the information available

        Next the evidence is evaluated in relation to a relevant norm Howprecocious is a child who reads fluently at age four? What relativerank or percentile score corresponds to this achievement? Thegroup to which the child is compared (we call it a reference group) isnot fully specified but this is also the rule in normal speech: ifsome1 graduating from college is described as “quite clever” yourarely need to ask “When you say ‘quite clever ’ which referencegroup do you have in mind?”

        The next step involves substitution and intensity matching Theevaluation of the flimsy evidence of cognitive ability in childhood issubstituted as an answer to the question about her college GPA Julie will be assigned the same percentile score for her GPA and forher achievements as an early reader

        The question specified that the answer must be on the GPA scale which requires another intensity matching operation from a generalimpression of Julie’s academic achievements to the GPA thatmatches the evidence for her talent The final step is a translation from an impression of Julie’s relative academic standing to the GPAthat corresponds to it

        experiment to judgedescriptions

        intelligent self confident well read hardworking inquisitive

        How much does this description impress you with respect toacademic ability?

        What percentage of descriptions of freshmen do you believewould impress you more?

    • A Correction for Intuitive Predictions
      • reading age = shared factors + factors specific to reading age = %
      • GPA = shared factors + factors specific to GPA = %
    • A Defense of Extreme Predictions?
    • A 2 Systems View of Regression
    • Speaking of Intuitive Predictions
      • “That start up achieved an outstanding proof of concept but weshouldn’t expect them to do as well in the future They are still along way from the market and there is a lot of room forregression ”

        “Our intuitive prediction is very favorable but it is probably toohigh Let’s take into account the strength of our evidence andregress the prediction toward the mean ”

        “The investment may be a good idea even if the best guess isthat it will fail Let’s not say we really believe it is the next Google ”

        “I read 1 review of that brand and it was excellent Still thatcould have been a fluke Let’s consider only the brands that havea large number of reviews and pick the 1 that looks best ”

• Part III Overconfidence
  • Chapter 19 The Illusion of Understanding
    • The Illusion of Understanding
      • narrative fallacy

        the notionof a narrative fallacy to describe how flawed stories of the past shape ourviews of the world and our expectations for the future

        Narrative fallaciesarise inevitably from our continuous attempt to make sense of the world

        The explanatory stories that people find compelling

        • are simple

          areconcrete rather than abstract

          assign a larger role to talent

          stupidity

          intentions than to luck

          focus on a few striking events that happenedrather than on the countless events that failed to happen

        we humans constantly fool ourselves by constructing flimsyaccounts of the past and believing they are true

        A compelling narrative fosters an illusion of inevitability

        • story of how Google turned into a giant of the technology industry

          A compelling narrative fosters an illusion of inevitability Consider thestory of how Google turned into a giant of the technology industry 2creative graduate students in the computer science department atStanford University come up with a superior way of searching informationon the Internet They seek and obtain funding to start a company and makea series of decisions that work out well Within a few years the companythey started is 1 of the most valuable stocks in America and the 2former graduate students are among the richest people on the planet On1 memorable occasion they were lucky which makes the story evenmore compelling: a year after founding Google they were willing to selltheir company for less than $ million but the buyer said the price was toohigh Mentioning the single lucky incident actually makes it easier tounderestimate the multitude of ways in which luck affected the outcome

        every choice they made hada good outcome

        The human mind doesnot deal well with n1vents The fact that many of the important events thatdid occur involve choices further tempts you to exaggerate the role of skilland underestimate the part that luck played in the outcome

        WY SIATI rule

        • At work here is that powerful WY SIATI rule You cannot help dealing withthe limited information you have as if it were all there is to know You buildthe best possible story from the information available to you and if it is agood story you believe it Paradoxically it is easier to construct a coherentstory when you know little when there are fewer pieces to fit into the puzzle Our comforting conviction that the world makes sense rests on a securefoundation: our almost unlimited ability to ignore our ignorance

          financial crisis was inevitable

          • I have heard of too many people who “knew well before it happened thatthe financial crisis was inevitable ” This sentence contains a highlyobjectionable word which should be removed from our vocabulary indiscussions of major events

        This isa misuse of an important concept In everyday language we apply theword know only when what was known is true and can be shown to be true We can know something only if it is both true and knowable

        But the peoplewho thought there would be a crisis (and there are fewer of them than nowremember thinking it) could not conclusively show it at the time

        Manyintelligent and well informed people were keenly interested in the future ofthe economy and did not believe a catastrophe was imminent; I infer fromthis fact that the crisis was not knowable

        What is perverse about the useof know in this context is not that some individuals get credit for presciencethat they do not deserve It is that the language implies that the world ismore knowable than it is It helps perpetuate a pernicious illusion

        The core of the illusion is that we believe we understand the past whichimplies that the future also should be knowable but in fact we understandthe past less than we believe we do Know is not the only word that fostersthis illusion In common usage the words intuition and premonition alsoare reserved for past thoughts that turned out to be true The statement “Ihad a premonition that the marriage would not last but I was wrong”sounds odd as does any sentence about an intuition that turned out to befalse

        To think clearly about the future we need to clean up the languagethat we use in labeling the beliefs we had in the past

      The Social Costs of Hindsight

      • The mind that makes up narratives about the past is a sense makingorgan When an unpredicted event occurs we immediately adjust our viewof the world to accommodate the surprise

        Imagine yourself before afootball game between 2 teams that have the same record of wins andlosses Now the game is over and 1 team trashed the other In yourrevised model of the world the winning team is much stronger than theloser and your view of the past as well as of the future has been altered bef?y that new perception Learning from surprises is a reasonable thing todo but it can have some dangerous consequences

        A general limitation of the human mind is its imperfect ability toreconstruct past states of knowledge or beliefs that have changed Onceyou adopt a new view of the world (or of any part of it) you immediatelylose much of your ability to recall what you used to believe before yourmind changed

        Many psychologists have studied what happens when people changetheir minds

        the participants report the opinion they held beforehand This taskturns out to be surprisingly difficult Asked to reconstruct their formerbeliefs people retrieve their current 1s instead—an instance ofsubstitution—and many cannot believe that they ever felt differently

        Your inability to reconstruct past beliefs will inevitably cause you tounderestimate the extent to which you were surprised by past events

      “I knew it all along” effect

      hindsight bias

      • Your inability to reconstruct past beliefs will inevitably cause you tounderestimate the extent to which you were surprised by past events Baruch Fischh off first demonstrated this “I knew it all along” effect orhindsight bias when he was a student in Jerusalem Together with RuthBeyth (another of our students) Fischh off conducted a survey beforePresident Richard Nixon visited China and Russia in Therespondents assigned probabilities to fifteen possible outcomes ofNixon’s diplomatic initiatives Would Mao Zedong agree to meet withNixon? Might the United States grant diplomatic recognition to China?After decades of enmity could the United States and the Soviet Unionagree on anything significant?

        After Nixon’s return from his travels Fischh off and Beyth asked thesame people to recall the probability that they had originally assigned toeach of the fifteen possible outcomes

        The results were clear If an eventhad actually occurred people exaggerated the probability that they hadassigned to it earlier If the possible event had not come to pass theparticipants err1ously recalled that they had always considered itunlikely

      Further experiments showed that people were driven to overstatethe accuracy not only of their original predictions but also of those made byothers

      Further experiments showed that people were driven to overstatethe accuracy not only of their original predictions but also of those made byothers

      Hindsight bias has pernicious effects on the evaluations of decisionmakers It leads observers to assess the quality of a decision not bywhether the process was sound but by whether its outcome was good orbad

      outcome bias

      • When the outcomes are bad the clients often blametheir agents for not seeing the handwriting on the wall—forgetting that itwas written in invisible ink that became legible only afterward

      Because adherence to standard operating procedures is difficult tosecond guess decision makers who expect to have their decisionsscrutinized with hindsight are driven to bureaucratic solutions—and to anextreme reluctance to take risks

      Recipes for Success

      Built to Last

      • The basic message of Built to Last and other similar books is that goodmanagerial practices can be identified and that good practices will berewarded by good results Both messages are overstated Thecomparison of firms that have been more or less successful is to asignificant extent a comparison between firms that have been more or lesslucky

      Speaking of Hindsight

      • “The mistake appears obvious but it is just hindsight You couldnot have known in advance ”

        “He’s learning too much from this success story which is too tidy He has fallen for a narrative fallacy ”

        “She has no evidence for saying that the firm is badly managed All she knows is that its stock has g1 down This is an outcomebias part hindsight and part halo effect ”

        “Let’s not fall for the outcome bias This was a stupid decisi1ven though it worked out well ”

  • Chapter 20 The Illusion of Validity
    • The Illusion of Validity

      System 1 is designed to jump to conclusions from little evidence—and it isnot designed to know the size of its jumps Because of WYSIATI only theevidence at hand counts Because of confidence by coherence thesubjective confidence we have in our opinions reflects the coherence of thestory that System 1 and System 2 have constructed The amount ofevidence and its quality do not count for much because poor evidence canmake a very good story For some of our most important beliefs we haveno evidence at all except that people we love and trust hold these beliefs Considering how little we know the confidence we have in our beliefs ispreposterous—and it is also essential

      “leaderless group challenge ”

      Eight candidates strangers to each other with all insignia ofrank removed and only numbered tags to identify them were instructed tolift a long log from the ground and haul it to a wall about six feet high Theentire group had to get to the other side of the wall without the log touchingeither the ground or the wall and without any1 touching the wall If any ofthese things happened they had to declare itsig?? T and start again

      The soldier who took over when the group was in trouble and led the teamover the wall was a leader at that moment

      The obvious best guess abouthow he would do in training or in combat was that he would be aseffective then as he had been at the wall Any other prediction seemedinconsistent with the evidence before our eyes

      The story was always the same: ourability to predict performance at the school was negligible Our forecastswere better than blind guesses but not by much

      the illusion of validity

      cognitive illusion

      Decades later I can see many of the central themes of my thinking—and ofthis book—in that old story Our expectations for the soldiers’ futureperformance were a clear instance of substitution and of therepresentativeness heuristic in particular Having observed 1 hour of asoldier’s behavior in an artificial situation we felt we knew how well hewould face the challenges of officer training and of leadership in combat

      Subjective confidence in a judgment is not a reas1d evaluation of theprobability that this judgment is correct

      Confidence is a feeling whichreflects the coherence of the information and the cognitive ease ofprocessing it It is wise to take admissions of uncertainty seriously butdeclarations of high confidence mainly tell you that an individual hasconstructed a coherent story in his mind not necessarily that the story istrue

      The Illusion of Stock Picking Skill

      role of judgment biases in investing

      • When yousell a stock
      • who buys it?”
      • What made 1 personbuy and the other sell?
      • What did the sellers think they knew that the buyersdid not?
      • The puzzle is why buyers and sellers alikethink that the current price is wrong
      • What makes them believe they knowmore about what the price should be than the market does?

      Many individual investors lose consistently by trading anachievement that a dart throwing chimp could not match

      • studying the trading records of brokerageaccounts

        identify allinstances in which an investor sold some of his holdings in 1 stock andsoon afterward bought another stock

        the investorrevealed that he (most of the investors were men) had a definite ideaabout the future of the 2 stocks:

        he expected the stock that he chose tobuy to do better than the stock he chose to sell

        The resultswere unequivocally bad

        On average the shares that individual traderssold did better than those they bought by a very substantial margin: percentage points per year above and beyond the significant costs ofexecuting the 2 trades

      conclusion

      • they showed that on average the most active tradershad the poorest results while the investors who traded the least earned thehighest returns

        men acted on their useless ideas significantly more often than women

        women achieved better investment results than men

        Individual investors like to lock in their gains by selling “winners ” stocksthat have appreciated since they were purchased and they hang on totheir losers

        recent winners tend to do better thanrecent losers in the short run so individuals sell the wrong stocks

        Theyalso buy the wrong stocks

        Individual investors predictably flock tocompanies that draw their attention because they are in the news

        Professional investors are more selective in responding to news

        Professional investors including fund managers fail a basic test of skill: persistent achievement

      The diagnostic for the existence of any skill is the consistency of individualdifferences in achievement

      The logic is simple: if individual differences inany 1 year are due entirely to luck the ranking of investors and funds willvary erratically and the year to year correlation will be zero

      Where there isskill however the rankings will be more stable The persistence ofindividual differences is the measure by which we confirm the existence ofskill among golfers car salespeople orthodontists or speedy tollcollectors on the turnpike

      for a large majority of fund managers the selectionof stocks is more like rolling dice than like playing poker

      the year to year correlation between the outcomes ofmutual funds is very small barely higher than zero

      The successful funds inany given year are mostly lucky; they have a good roll of the dice

      There isgeneral agreement among researchers that nearly all stock pickers whether they know it or not—and few of them do—are playing a game ofchance

      The subjective experience of traders is that they are makingsensible educated guesses in a situation of great uncertainty

      In highlyefficient markets however educated guesses are no more accurate thanblind guesses

      illusion offinancial skill

      • to rank the advisers by their performance in each year andto determine whether there were persistent differences in skill among them

        whether the same advisers consistently achieved better returns fortheir clients year after year

        To answer the question I computed correlation coefficients between therankings in each pair of years: year with year year with year andso on up through year with year That yielded correlationcoefficients 1 for each pair of years I knew the theory and wasprepared to find weak evidence of persistence of skill Still I was surprisedto find that the average of the correlations was In other words zero

        The consistent correlations that would indicate differences in skill were notto be found The results resembled what you would expect from a dicerollingcontest not a game of skill

        quickly became clear however that no 1 expected theaverage correlation to be zero

        Our message to the executives was that at least when it came tobuilding portfolios the firm was rewarding luck as if it were skill

        The illusion of skill is not only an individual aberration; itis deeply ingrained in the culture of the industry

        Their own experience of exercising carefuljudgment on complex problems was far more compelling to them than anobscure statistical fact

      What Supports the Illusions of Skill and Validity?

      • Cognitive illusions can be more stubborn than visual illusions

        The most potent psychological cause of the illusion is certainly that thepeople who pick stocks are exercising high level skills

        They consulteconomic data and forecasts

        they examine income statements andbalance sheets

        they evaluate the quality of top management

        theyassess the competition

        Unfortunately skill in evaluating thebusiness prospects of a firm is not sufficient for successful stock trading

        subjective confidence of traders is a feeling not a judgment

        the illusions of validity and skill are supported by a powerfulprofessional culture We know that people can maintain an unshakablefaith in any proposition however absurd when they are sustained by acommunity of like minded believers Given the professional culture of thefinancial community it is not surprising that large numbers of individuals inthat world believe themselves to be among the chosen few who can dowhat they believe others cannot

      The Illusions of Pundits

      • The idea that the future is unpredictable is undermined every day by theease with which the past is explained

        our tendency to construct and believe coherent narratives ofthe past makes it difficult for us to accept the limits of our forecastingability

        Everything makes sense in hindsight a fact that financial punditsexploit every evening as they offer convincing accounts of the day’s even

        And we cannot suppress the powerful intuition that what makes sense inhindsight today was predictable yesterday

        The illusion that we understandthe past fosters overconfidence in our ability to predict the future

        Expert Political Judgment: How Good Is It?How Can We Know?

        Tetlock interviewed people who made their living “commenting oroffering advice on political and economic trends ” He asked them toassess the probabilities that certain events would occur in the not toodistant future both in areas of the world in which they specialized and inregions about which they had less knowledge Would Gorbachev beousted in a coup? Would the United States go to war in the Persian Gulf?Which country would become the next big emerging market? In all Tetlockgathered more than predictions He also asked the experts howthey reached their conclusions how they reacted when proved wrong andhow they evaluated evidence that did not support their positions Respondents were asked to rate the probabilities of three alternativeoutcomes in every case: the persistence of the status quo more ofsomething such as political freedom or economic growth or less of thatthing

        The results were devastating The experts performed worse than theywould have if they had simply assigned equal probabilities to each of thethree potential outcomes In other words people who spend their time andearn their living studying a particular topic produce poorer predictions thandart throwing monkeys who would have distributed their choices evenlyover the options Even in the region they knew best experts were notsignificantly better than nonspecialists

        Those who know more forecast very slightly better than those who knowless But those with the most knowledge are often less reliable

        The reasonis that the person who acquires more knowledge develops an enhancedillusion of her skill and becomes unrealistically overconfident

        Those who know more forecast very slightly better than those who knowless But those with the most knowledge are often less reliable The reasonis that the person who acquires more knowledge develops an enhancedillusion of her skill and becomes unrealistically overconfident “We reachthe point of diminishing marginal predictive returns for knowledgedisconcertingly quickly ” Tetlock writes “In this age of academichyperspecialization there is no reason for supposing that contributors totop journals—distinguished political scientists area study specialists economists and so on—are any better than journalists or attentive readerso f The New York Times in ‘reading&#oul ; emerging situations ”

        The more famous the forecaster Tetlock discovered the more flamboyantthe forecasts “Experts in demand ” he writes “were more overconfidentthan their colleagues who eked out existences far from the limelight ”

        Tetlock also found that experts resisted admitting that they had beenwrong and when they were compelled to admit error they had a largecollection of excuses: they had been wrong only in their timing anunforeseeable event had intervened or they had been wrong but for theright reasons

        Experts are just human in the end They are dazzled by theirown brilliance and hate to be wrong

        Experts are led astray not by whatthey believe but by how they think says Tetlock

        “The Hedgehog and the Fox ”

        • “The Hedgehog and the Fox ”Hedgehogs “know 1 big thing” and have a theory about the world; theyaccount for particular events within a coherent framework bristle withimpatience toward those who don’t see things their way and are confidentin their forecasts They are also especially reluctant to admit error Forhedgehogs a failed prediction is almost always “off only on timing” or “verynearly right ” They are opinionated and clear which is exactly whattelevision producers love to see on programs 2 hedgehogs on differentsides of an issue each attacking the idiotic ideas of the adversary makefor a good show
          • Foxes by contrast are complex thinkers They don’t believe that 1 bigthing drives the march of history (for example they are unlikely to acceptthe view that Ronald Reagan single handedly ended the cold war bystanding tall against the Soviet Union) Instead the foxes recognize thatreality emerges from the interactions of many different agents and forces including blind luck often producing large and unpredictable outcomes Itwas the foxes who scored best in Tetlock’s study although theirperformance was still very poor They are less likely than hedgehogs to beinvited to participate in television debates

      It is Not the Experts’ Fault—The World is Difficult

      The main point of this chapter is not that people who attempt to predict thefuture make many errors; that goes without saying

      • The first lesson is thaterrors of prediction are inevitable because the world is unpredictable

        Thesecond is that high subjective confidence is not to be trusted as anindicator of accuracy (low confidence could be more informative)

        Short term trends can be forecast and behavior and achievements canbe predicted with fair accuracy from previous behaviors andachievements

        But we should not expect performance in officer trainingand in combat to be predictable from behavior on an obstacle field—behavior both on the test and in the real world is determined by manyfactors that are specific to the particular situation

        Remove 1 highlyassertive member from a group of eight candidates and every1 else’spersonalities will appear to change

        Let a sniper’s bullet move by a fewcentimeters and the performance of an officer will be transformed

        do notdeny the validity of all tests—if a test predicts an important outcome with avalidity of or the test should be used But you should not expectmore

        You should expect little or nothing from Wall Street stock pickerswho hope to be more accurate than the market in predicting the future ofprices

        And you should not expect much from pundits making long termforecasts—although they may have valuable insights into the near future The line that separates the possibly predictable future from theunpredictable distant future is in yet to be drawn

      Speaking of Illusory Skill

      • “He knows that the record indicates that the development of thisillness is mostly unpredictable How can he be so confident in thiscase? Sounds like an illusion of validity ”

        “She has a coherent story that explains all she knows and thecoherence makes her feel good ”

        “What makes him believe that he is smarter than the market? Isthis an illusion of skill?”

        “She is a hedgehog She has a theory that explains everything and it gives her the illusion that she understands the world ”

        “The question is not whether these experts are well trained It iswhether their world is predictable ”

  • Chapter 21 Intuitions Vs Formulas
    • Intuitions vs Formulas
      • % of the studies have shown significantly betteraccuracy for the algorithms

      The other comparisons scored a draw inaccuracy but a tie is tantamount to a win for the statistical rules which arenormally much less expensive to use than expert judgment

      The range of predicted outcomes has expanded to cover medicalvariables such as

      • the longevity of cancer patients
      • the length of hospitalstays the diagnosis of cardiac disease
      • the susceptibility of babies tosudden infant death syndrome;
      • economic measures such as the prospectsof success for new businesses
      • the evaluation of credit risks by banks
      • the future career satisfaction of workers
      • questions of interest togovernment agencies
      • the odds of recidivism among juvenile offenders
      • thelikelihood of other forms of violent behavior
      • the evaluation of scientific presentations
      • the winners of footballgames
      • the future prices of Bordeaux wine

      Each of these domainsentails a significant degree of uncertainty and unpredictability Wedescribe them as “low validity environments ” In every case the accuracyof experts was matched or exceeded by a simple algorithm

      power of simple statistics to outdo worldrenownedexperts

      Ashenfelter converted that conventional knowledge into astatistical formula that predicts the price of a wine—for a particularproperty and at a particular age—by three features of the weather: theaverage temperature over the summer growing season the amount of rainat harvest time and the total rainfall during the previous winter

      Why are experts inferior to algorithms?

      experts try to be clever think outside the box andconsider complex combinations of features in making their predictions

      Complexity may work in the odd case but more often than not it reducesvalidity

      Simple combinations of features are better Several studies haveshown that human decision makers are inferior to a prediction formulaeven when they are given the score suggested by the formula

      They feelthat they can overrule the formula because they have additional informationabout the case but they are wrong more often than not

      “broken leg rule”

      can overrule the formula because they have additional informationabout the case but they are wrong more often than not According toMeehl there are few circumstances under which it is a good idea tosubstitute judgment for a formula In a famous thought experiment hedescribed a formula that predicts whether a particular person will go to themovies tonight and noted that it is proper to disregard the formula ifinformation is received that the individual broke a leg today The name“broken leg rule” has stuck The point of course is that broken legs arevery rare—as well as decisive

      Another reason for the inferiority of expert judgment is that humans areincorrigibly inconsistent in making summary judgments of complexinformation

      When asked to evaluate the same information twice theyfrequently give different answers

      Experienced radiologists who evaluate chest Xraysas “normal” or “abnormal” contradict themselves % of the timewhen they see the same picture on separate occasions

      be valid predictors of anything The widespread inconsistency is probably due to the extreme contextdependency of System 1 We know from studies of priming that unnoticedstimuli in our environment have a substantial influence on our thoughts andactions These influences fluctuate from moment to moment The briefpleasure of a cool breeze on a hot day may make you slightly morepositive and optimistic about whatever you are evaluating at the time Theprospects of a convict being granted parole may change significantlyduring the time that elapses between successive food breaks in the parolejudges’ schedule Because you have little direct knowledge of what goeson in your mind you will never know that you might have made a differentjudgment or reached a different decision under very slightly differentcircumstances

      Formulas do not suffer from such problems Given thesame input they always return the same answer When predictability ispoor

      to maximize predictiveaccuracy final decisions should be left to formulas especially in lowvalidityenvironments

      marital stability

      frequency of lovemaking minus frequency of quarrelsYou don’t want your result to be a negative number

      infant who is not breathing normally within a fewminutes of birth is at high risk of brain damage or death

      A classic application of this approach is a simple algorithm that hassaved the lives of hundreds of thousands of infants Obstetricians hadalways known that an infant who is not breathing normally within a fewminutes of birth is at high risk of brain damage or death Until theanesthesiologist Virginia Apgar intervened in physicians andmidwives used their clinical judgment to determine whether a baby was indistress Different practiti1rs focused on different cues Some watchedfor breathing problems while others monitored how soon the baby cried Without a standardized procedure danger signs were often missed andmany newborn infants died

      five variables

      • (heart rate
      • respiration
      • reflex
      • muscle t1
      • color
      • three scores ( or

      A babywith a total score of or above was likely to be pink squirming crying grimacing with a pulse of or more—in good shape

      A baby with ascore of or below was probably bluish flaccid passive with a slow orweak pulse—in need of immediate intervention

      checklists and simple rules

      The Hostility to Algorithms

      • However the line between what clinicianscan do well and what they cannot do at all well is not obvious and certainlynot obvious to them

        They know they are skilled but they don’t necessarilyknow the boundaries of their skill

        the idea that amechanical combination of a few variables could outperform the subtlecomplexity of human judgment strikes experienced clinicians as obviouslywrong

        The debate about the virtues of clinical and statistical prediction hasalways had a moral dimension The statistical method Meehl wrote wascriticized by experienced clinicians as “mechanical atomistic additive cutand dried artificial unreal arbitrary incomplete dead pedantic fractionated trivial forced static superficial rigid sterile academic pseudoscientific and blind ” The clinical method on the other hand waslauded by its prop1nts as “dynamic global meaningful holistic subtle sympathetic configural patterned organized rich deep genuine sensitive sophisticated real living concrete natural true to life andunderstanding ”

        This is an attitude we can all recognize When a human competes with amachine whether it is John Henry a hammerin’ on the mountain or thechess genius Garry Kasparov facing off against the computer Deep Blue our sympathies lie with our fellow human

        The aversion to algorithmsmaking decisions that affect humans is rooted in the strong preference thatmany people have for the ormnatural over the synthetic or artificial

        Askedwhether they would rather eat an organic or a commercially grown apple most people prefer the “all natural” 1 Even after being informed that the2 apples taste the same have identical nutritional value and are equallyhealthful a majority still prefer the organic fruit Even the producers of beerhave found that they can increase sales by putting “All Natural” or “NoPreservatives” on the label

      Learning from Meehl

      simple statisticalrules are superior to intuitive “clinical” judgments

      we should abandon the procedure inwhich the interviewers’ global evaluations of the recruit determined the finaldecisio

      we should abandon the procedure inwhich the interviewers’ global evaluations of the recruit determined the finaldecisio

      Speaking of Judges vs Formulas

      • “Whenever we can replace human judgment by a formula weshould at least consider it ”

        “He thinks his judgments are complex and subtle but a simplecombination of scores could probably do better ”

        “Let’s decide in advance what weight to give to the data we haveon the candidates’ past performance Otherwise we will give toomuch weight to our impression from the interviews ”

  • Chapter 22 Expert Intuition: When Can We Trust It?
    • Expert Intuition: When Can We Trust It?

      Professional controversies bring out the worst in academics Scientificjournals occasionally publish exchanges often beginning with some1’scritique of another’s research followed by a reply and a rejoinder I havealways thought that these exchanges are a waste of time

      The replies rarely concede anything to a biting critique and it isalmost unheard of for a rejoinder to admit that the original critique wasmisguided or err1ous in any way

      “adversarial collaborations ”

      • “adversarial collaborations ” inwhich scholars who disagree on the science agree to write a jointlyauthored paper on their differences and sometimes conduct researchtogether In especially tense situations the research is moderated by anarbiter

      students of Naturalistic Decision Making

      mostly work inorganizations where the” %? ty often study how experts work

      When can you trust anexperienced professional who claims to have an intuition?

      Marvels and Flaws

      Intuition as Recognition

      recognition primed decision (RPD)

      • The process involves both System 1 and System 2 In the first phase atentative plan comes to mind by an automatic function of associativememory—System 1

        The next phase is a deliberate process in which theplan is mentally simulated to check if it will work—an operation of System

      intuition

      • “The situation has provided a cue; thiscue has given the expert access to information stored in memory and theinformation provides the answer Intuition is nothing more and nothing lessthan recognition ”

        the mystery of knowing without knowing is not adistinctive feature of intuition; it is the norm of mental life

      Acquiring Skill

      The Environment of Skill

      • the confidence that people have in their intuitions is not a reliableguide to their validity In other words do not trust any1—includingyourself—to tell you how much you should trust their judgment

        If subjective confidence is not to be trusted how can we evaluate theprobable validity of an intuitive judgment

        When do judgments reflect trueexpertise?

        When do they display an illusion of validity?

      The answer comesfrom the 2 basic conditions for acquiring a skill:

      • an environment that is sufficiently regular to be predictable
      • an opportunity to learn these regularities through prolonged practice

      Feedback and Practice

      • Some regularities in the environment are easier to discover and apply thanothers Think of how you developed your style of using the brakes on yourcar As you were mastering the skill of taking curves you gradually learnedwhen to let go of the accelerator and when and how hard to use the brakes

        Expertise is not a single skill; it is a collection of skills and the sameprofessional may be highly expert in some of the tasks in her domain whileremaining a novice in others

      Evaluating Validity

      When can you trust an experienced professional whoclaims to have an intuition?

      Our conclusion was that for the most part it ispossible to distinguish intuitions that are likely to be valid from those thatare likely to be bogus As in the judgment of whether a work of art isgenuine or a fake you will usually do better by focusing on its provenancethan by looking at the piece itself If the environment is sufficiently regularand if the judge has had a chance to learn its regularities the associativemachinery will recognize situations and generate quick and accuratepredictions and decisions You can trust some1’s intuitions if theseconditions are met

      Speaking of Expert Intuition

      • “How much expertise does she have in this particular task? Howmuch practice has she had?”

        “Does he really believe that the environment of start ups issufficiently regular to justify an intuition that goes against the baserates?”

        “She is very confident in her decision but subjective confidenceis a poor index of the accuracy of a judgment ”

        “Did he really have an opportunity to learn? How quick and howclear was the feedback he received on his judgments?”

  • Chapter 23 The Outside View
    • The Outside View
      • judgment and decision making

        no connection in his mind between hisknowledge of the history of other teams and his forecast of our future

        learned three lessons

        The first was immediately apparent: I had stumbled onto a distinctionbetween 2 profoundly different approaches to forecasting which Amosand I later labeled the inside view and the outside view

        The second lessonwas that our initial forecasts of about 2 years for the completion of theproject exhibited a planning fallacy Our estimates were closer to a bestcasescenario than to a realistic assessment

        third lesson which I call irrational perseverance: the folly we displayed thatday in failing to abandon the project Facing a choice we gave uprationality rather than give up the enterprise

    • Drawn to the Inside View
      • focused on our specific circumstances andsearched for evidence in our own experiences

        We had a sketchy plan: weknew how many chapters we were going to write and we had an idea ofhow long it had taken us to write the 2 that we had already d1 Themore cautious among us probably added a few months to their estimateas a margin of error

        Extrapolating was a mistake We were forecasting based on theinformation in front of us—WYSIATI—but the chapters we wrote first wereprobably easier than others and our commitment to the project wasprobably then at its peak

        But the main problem was that we failed to allowfor what Donald Rumsfeld famously called the “unknown unknowns ”

        Therewas no way for us to foresee that day the succession of events that wouldcause the project to drag out for so long The divorces the illnesses thecrises of coordination with bureaucracies that delayed the work could notbe anticipated Such events not only cause the writing of chapters to slowdown they also produce long periods during which little or no progress ismade at all

    • The Planning Fallacy
      • overly optimistic forecastsof the outcome of projects are found everywhere
      • are unrealistically close to best case scenarios
      • could be improved by consulting the statistics of similar cases
    • Mitigating the Planning Fallacy
    • Decisions and Errors
      • When forecasting the outcomes of risky projects executives too easilyfall victim to the planning fallacy In its grip they make decisions based ondelusional optimism rather than on a rational weighting of gains losses and probabilities
    • Failing a Test
    • Speaking of the Outside View
      • “He’s taking an inside view He should forget about his own caseand look for what happened in other cases ”

        “She is the victim of a planning fallacy She’s assuming a bestcasescenario but there are too many different ways for the planto fail and she cannot foresee them all ”

        “Suppose you did not know a thing about this particular legalcase only that it involves a malpractice claim by an individualagainst a surgeon What would be your baseline prediction? Howmany of these cases succeed in court? How many settle? Whatare the amounts? Is the case we are discussing stronger orweaker than similar claims?”

        We are making an additional investment because we do notwant to admit failure This is an instance of the sunk cost fallacy ”

  • Chapter 24 The Engine of Capitalism
    • The Engine of Capitalism

      Optimists

      Entrepreneurial Delusions

      1 of the benefits of an optimistic temperament is that it encouragespersistence in the face of obstacles

      OverconfidenceFor

      Overconfidence isanother manifestation of WYSIATI: when we estimate a quantity we rely oninformation that comes to mind and construct a coherent story in which theestimate makes sense Allowing for the information that does not come tomind—perhaps because 1 never knew it—is impossible

      The Premortem: A Partial Remedy

      Speaking of Optimism

      • “They have an illusion of control They seriously underestimate theobstacles ”
      • “They seem to suffer from an acute case of competitor neglect ”
      • “This is a case of overconfidence They seem to believe theyknow more than they actually do know ”
      • “We should conduct a premortem session Some1 may comeup with a threat we have neglected ”
• Part IV Choices
  • Chapter 25 Bernoulli’s Errors
    • Bernoulli’s Errors

      Prospect Theory: An Analysis of Decision under Risk

      Our theory was closely modeled on utility theory but departed from it infundamental ways Most important our model was purely descriptive andits goal was to document and explain systematic violations of the axiomsof rationality in choices between gambles

      As in Fechner’s law the psychological response to a change of wealthis inversely proportional to the initial amount of wealth leading to theconclusion that utility is a logarithmic function of wealth If this function isaccurate the same psychological distance separates $ from $million and $ million from $ million

      Bernoulli observed that most people dislike risk (the chance of receivingthe lowest possible outcome) and if they are offered a choice between athe lowest possible outcome) and if they are offered a choice between agamble and an amount equal to its expected value they will pick the surething

      psychophysics

      psychophysics to explain this aversion to risk His idea wasstraightforward: people’s choices are based not on dollar values but on thepsychological values of outcomes their utilities The psychological value ofa gamble is therefore not the weighted average of its possible dollaroutcomes; it is the average of the utilities of these outcomes eachweighted by its probability

      Bernoulli’s insight was thata decision maker with diminishing marginal utility for wealth will be riskaverse

      expected utility

      “moral expectation”

      Bernoulli’s essay is a marvel of concise brilliance He applied his newconcept of expected utility (which he called “moral expectation”) tocompute how much a merchant in St Petersburg would be willing to pay toinsure a shipment of spice from Amsterdam if “he is well aware of the factthat at this time of year of 1 hundred ships which sail from Amsterdam toPetersburg five are usually lost ” His utility function explained why poorpeople buy insurance and why richer people sell it to them As you can seein the table the loss of million causes a loss of points of utility (from to ) to some1 who has million and a much larger loss of points (from to ) to some1 who starts off with million

      The poorerman will happily pay a premium to transfer the risk to the richer 1 whichis what insurance is about

      St Petersburg paradox

      “St Petersburg paradox ” in which people who are offered a gamble thathas infinite expected value (in ducats) are willing to spend only a fewducats for it Most impressive his analysis of risk attitudes in terms ofpreferences for wealth has stood the test of time: it is still current ineconomic analysis almost years later

      Today Jack and Jill each have a wealth of million Yesterday Jack had million and Jill had million Are they equally happy? (Do they have the same utility?)

      Bernoulli’s theory assumes that the utility of their wealth is what makespeople more or less happy Jack and Jill have the same wealth and thetheory therefore asserts that they should be equally happy but you do notneed a degree in psychology to know that today Jack is elated and Jilldespondent Indeed we know that Jack would be a great deal happierthan Jill even if he had only million today while she has So Bernoulli’stheory must be wrong

      The happiness that Jack and Jill experience is determined by the recentchange in their wealth relative to the different states of wealth that definetheir reference points ( million for Jack million for Jill)

      This referencedependence is ubiquitous in sensation and perception The same soundwill be experienced as very loud or quite faint depending on whether it waspreceded by a whisper or by a roar

      Anthony (who currently owns million): “If I choose the sure thing my wealth will double with certainty This is very attractive Alternatively I can take a gamble with equal chances toquadruple my wealth or to gain nothing ”

      Betty (who currently owns million): “If I choose the sure thing Ilose half of my wealth with certainty which is awful Alternatively Ican take a gamble with equal chances to lose three quarters ofmy wealth or to lose nothing ”

      You can sense that Anthony and Betty are likely to make differentchoices because the sure thing option of owning million makes Anthonyhappy and makes Betty miserable Note also how the sure outcome differsfrom the worst outcome of the gamble: for Anthony it is the differencebetween doubling his wealth and gaining nothing; for Betty it is thedifference between losing half her wealth and losing three quarters of it Betty is much more likely to take her chances as others do when facedwith very bad option

      neither Anthony nor Bettythinks in terms of states of wealth:

      Anthony thinks of gains and Betty thinksof losses

      The psychological outcomes they assess are entirely different although the possible states of wealth they face are the same

      theory induced blindness

      • The mystery is how a conception of the utility of outcomes that isvulnerable to such obvious counterexamples survived for so long I canexplain it only by a weakness of the scholarly mind that I have oftenobserved in myself I call it theory induced blindness

        once you haveaccepted a theory and used it as a tool in your thinking it is extraordinarilydifficult to notice its flaws If you come upon an observation that does notseem to fit the model you assume that there must be a perfectly goodexplanation that you are somehow missing

        You give the theory the benefitof the doubt trusting the community of experts who have accepted it Manyscholars have surely thought at 1 time or another of stories such asthose of Anthony and Betty or Jack and Jill and casually noted that thesestories did not jibe with utility theory

        But they did not pursue the idea to thepoint of saying “This theory is seriously wrong because it ignores the factthat utility depends on the history of 1’s wealth not only on presentwealth ”

        disbelieving is hardwork and System 2 is easily tired

      Speaking of Bernoulli’s Errors

      • “He was very happy with a $ bonus three years ago buthis salary has g1 up by % since so he will need a higherbonus to get the same utility ”

        “Both candidates are willing to accept the salary we’re offering but they won’t be equally satisfied because their reference pointsare different She currently has a much higher salary ”

        “She’s suing him for alimony She would actually like to settle buthe prefers to go to court That’s not surprising—she can onlygain so she’s risk averse He on the other hand faces optionsthat are all bad so he’d rather take the risk ”

  • Chapter 26 Prospect Theory
    • Prospect Theory

      Recent developmentsin psychophysical theory suggested that if you want to study the subjectivevalue of wealth you shou Clth”ld ask direct questions about wealth notabout changes of wealth I did not know enough about utility theory to beblinded by respect for it and I was puzzled

      economist HarryMarkowitz who would later earn the Nobel Prize for his work on finance had proposed a theory in which utilities were attached to changes ofwealth rather than to states of wealth

      The idea of derivingattitudes to small changes from the utility of wealth now seemedindefensible You know you have made a theoretical advance when youcan no longer reconstruct why you failed for so long to see the obvious

      utility theory

      • In utility theory the utility of a gain is assessed by comparing the utilitiesof 2 states of wealth For example the utility of getting an extra $ when your wealth is $ million is the difference between the utility of$ and the utility of $ million

        In Bernoulli’s theory you need to know only the state of wealth todetermine its utility but in prospect theory you also need to know thereference state

      Prospect theory is therefore more complex than utilitytheory

      three cognitive features at the heartof prospect theory

      • Evaluation is relative to a neutral reference point which issometimes referred to as an “adaptation level
        • You can easily set upa compelling demonstration of this principle Place three bowls ofwater in front of you Put ice water into the left hand bowl and warmwater into the right hand bowl The water in the middle bowl shouldbe at room temperature Immerse your hands in the cold and warmwater for about a minute then dip both in the middle bowl You willexperience the same temperature as heat in 1 hand and cold inthe other For financial outcomes the usual reference point is thestatus quo but it can also be the outcome that you expect orperhaps the outcome to which you feel entitled for example theraise or bonus that your colleagues receive Outcomes that arebetter than the reference points are gains Below the reference pointthey are losses

        A principle of diminishing sensitivity applies to both sensorydimensions and the evaluation of changes of wealth

        • Turning on aweak light has a large effect in a dark room The same increment oflight may be undetectable in a brightly illuminated room Similarly thesubjective difference between $ and $ is much smaller thanthe difference between $ and $

        The third principle is loss aversion

        • When directly compared orweighted against each other losses loom larger than gains Thisasymmetry between the power of positive and negative expectationsor experiences has an evolutionary history Organisms that treatthreats as more urgent than opportunities have a better chance tosurvive and reproduce

      Loss Aversion

      • Many of the options we face in life are “mixed”: there is a risk of loss andan opportunity for gain and we must decide whether to accept the gambleor reject it Investors who evaluate a start up lawyers who wonder whetherto file a lawsuit wartime generals who consider an offensive andpoliticians who must decide whether to run for office all face thepossibilities of victory or defeat For an elementary example of a mixedprospect examine your reaction to the next question

        Problem : You are offered a gamble on the toss of a coin If the coin shows tails you lose $ If the coin shows heads you win $ Is this gamble attractive? Would you accept it?

        There is no contradiction In the mixed case the possible loss looms twiceas large as the possible gain as you can see by comparing the slopes ofthe value function for losses and gains In the bad case the bending of thevalue curve (diminishing sensitivity) causes risk seeking The pain of losing$ is more than % of the pain of losing $ These 2 insightsare the essence of prospect theory

        the behavioral economist Matthew Rabin finallyproved mathematically that attempts to explain loss aversion by the utility ofwealth are absurd and doomed to fail and his proof attracted attention Rabin’s theorem shows that any1 who rejects a favorable gamble withsmall stakes is mathematically committed to a foolish level of risk aversionfor some larger gamble For example he notes that most Humans rejectthe following gamble

        • % chance to lose $ and % chance to win $

        an individual who rejects thatgamble will also turn down the following gamble:

        • % chance to lose $ and % chance to win $

      Blind Spots pf Prospect Theory

      • The standard concepts and results thatundergraduates are taught are most easily explained by assuming thatEcons do not make foolish mistakes

        Humans described by prospect theory are guided by theimmediate emotional impact of gains and losses not by long termprospects of wealth and global utility

        Prospect theory has flaws

        Consider the assumption of prospect theory that the reference point usually the status quo has a value of zero This assumption seemsreasonable but it leads to some absurd consequences Have a good lookat the following prospects What would it be like to own them?

        A 1 chance in a million to win $ million

        B % chance to win $ and % chance to win nothing

        C % chance to win $ million and % chance to win nothing

        Winning nothing is a possible outcome in all three gambles and prospecttheory assigns the same value to that outcome in the three cases Winningnothing is the reference point and its value is zero Do these statementscorrespond to your experience? Of course not Winning nothing is an1vent in the first 2 cases and assigning it a value of zero makesgood sense In contrast failing to win in the third scenario is intenselydisappointing Like a salary increase that has been promised informally the high probability of winning the large sum sets up a tentative newreference point Relative to your expectations winning nothing will beexperienced as a large loss Prospect theory cannot cope with this fact because it does not allow the value of an outcome (in this case winningnothing) to change when it is highly unlikely or when the alternative is veryvaluable

        prospect theory cannot deal withdisappointment

        Disappointment and the anticipation of disappointmentare real

        Prospect theory and utility theory also fail to allow for regret

        Problem : Choose between % chance to win $ million OR$ with certainty

        Problem : Choose between % chance to win $ million OR$ with certainty

        Compare the anticipated pain of choosing the gamble and not winning inthe 2 cases Failing to win is a disappointment in both but the potentialpain is compounded in problem by knowing that if you choose thegamble and lose you will regret the “greedy” decision you made byspurning a sure gift of $ In regret the experience of an outcomedepends on an option you could have adopted but did not

        Several economists and psychologists have proposed models ofdecision making that are based on the emotions of regret anddisappointment

        It is fair to say that these models have had less influencethan prospect theory and the reason is instructive The emotions of regretand disappointment are real and decision makers surely anticipate theseemotions when making their choices The problem is that regret theoriesmake few striking predictions that would distinguish them from prospecttheory which has the advantage of being simpler

        Scientists use theories as a bag of working tools and they willnot take on the burden of a heavier bag unless the new tools are veryuseful Prospect theory was accepted by many scholars not because it is“true” but because the concepts that it added to utility theory notably thereference point and loss aversion were worth the trouble; they yielded newpredictions that turned out to be true We were lucky

      Speaking of Prospect Theory

      • “He suffers from extreme loss aversion which makes him turn down veryfavorable opportunities ”
      • “Considering her vast wealth her emotional response to trivial gains andlosses makes no sense ”
      • “He weighs losses about twice as much as gains which is normal ”
  • Chapter 27 The Endowment Effect
    • The Endowment Effect
      • Students learn in introductory economics classes that each point on themap specifies a particular combination of income and vacation days Each“indifference curve” connects the combinations of the 2 goods that areequally desirable—they have the same utility

        The curves would turn intoparallel straight lines if people were willing to “sell” vacation days for extraincome at the same price regardless of how much income and how muchvacation time they have

        The convex shape indicates diminishing marginalutility: the more leisure you have the less you care for an extra day of it and each added day is worth less than the 1 before

        Similarly the moreincome you have the less you care for an extra dollar and the amount youare willing to give up for an extra day of leisure increases

        Albert and Ben

        To appreciate the power that the reference point exerts on choices consider Albert and Ben “hedonic twins” who have identical tastes andcurrently hold identical starting jobs with little income and little leisure time Their current circumstances correspond to the point marked in figure The firm offers them 2 improved positions A and B and lets themdecide who will get a raise of $ (position A) and who will get anextra day of paid vacation each month (position B) As they are bothindifferent they toss a coin Albert gets the raise Ben gets the extraleisure Some time passes as the twins get accustomed to their positions Now the company suggests they may switch jobs if they wish

        The standard theory represented in the figure assumes that preferencesare stable over time Positions A and B are equally attractive for both twinsand they will need little or no incentive to switch In sharp contrast prospecttheory asserts that both twins will definitely prefer to remain as they are This preference for the status quo is a consequence of loss aversion

        Go to A: a raise of $ ORGo to B: extra days of vacation

        You just had the subjective experience of loss aversion You could feel it: asalary cut of $ is very bad news Even if a gain of vacation dayswas as impressive as a gain of $ the same improvement of leisureis not sufficient to compensate for a loss of $ Albert will stay at Abecause the disadvantage of moving outweighs the advantage The samereasoning applies to Ben who will also want to keep his present jobbecause the loss of now precious leisure outweighs the benefit of the extraincome

        model of indifference curves does not predict

        First tastes arenot fixed; they vary with the reference point

        Second the disadvantages ofa change loom larger than its advantages inducing a bias that favors thestatus quo

        Conventional indifference maps and Bernoulli’s representation ofoutcomes as states of wealth share a mistaken assumption: that your utilityfor a state of affairs depends only on that state and is not affected by yourhistory Correcting that mistake has been 1 of the achievements ofbehavioral economics

    • The Endowment Effect
      • The question of when an approach or a movement got its start is oftendifficult to answer but the origin of what is now known as behavioraleconomics can be specified precisely

        Richard Thaler found many examples of what he called the endowmenteffect especially for goods that are not regularly traded You can easilyimagine yourself in a similar situation Suppose you hold a ticket to a soldoutconcert by a popular band which you bought at the regular price of$ You are an avid fan and would have been willing to pay up to $ for the ticket Now you have your ticket and you learn on the Internet thatricher or more desperate fans are offering $ Would you sell? If youresemble most of the audience at sold out events you do not sell Yourlowest selling price is above $ and your maximum buying price is$ This is an example of an endowment effect and a believer instandard economic theory would be puzzled by it Thaler was looking for anaccount that could explain puzzles of this kind

    • Thinking Like a Trader
      • The fundamental ideas of prospect theory are that reference points exist and that losses loom larger than corresponding gains

        No endowment effect is expected when owners view their goods ascarriers of value for future exchanges a widespread attitude in routinecommerce and in financial markets

        experimental economist JohnList who has studied trading at baseball card conventions found thatnovice traders were reluctant to part with the cards they owned but that thisreluctance eventually disappeared with trading experience

        decision making under poverty

        Recent studies of the psychology of “decision making under poverty”suggest that the poor are another group in which we do not expect to findthe endowment effect Being poor in prospect theory is living below 1’sthe endowment effect Being poor in prospect theory is living below 1’sreference point

        People who are poor think like traders but the dynamics are quitedifferent Unlike traders the poor are not indifferent to the differencesbetween gaining and giving up Their problem is that all their choices arebetween losses M1y that is spent on 1 good is the loss of anothergood that could have been purchased instead For the poor costs arelosses

    • Speaking Of The Endowment Effect
      • “She didn’t care which of the 2 offices she would get but a dayafter the announcement was made she was no longer willing totrade Endowment effect!”

        “These negotiations are going nowhere because both sides findit difficult to make concessions even when they can getsomething in return Losses loom larger than gains ”

        “When they raised their prices demand dried up ”

        “He just hates the idea of selling his house for less m1y than hepaid for it Loss aversion is at work ”

        “He is a miser and treats any dollar he spends as a loss ”

  • Chapter 28 Bad Events
    • Bad Events
      • The concept of loss aversion is certainly the most significant contribution ofpsychology to behavioral economics

      Negativity Dominance

      The brains of humans and other animals contain amechanism that is designed to give priority to bad news By shaving a fewhundredths of a second from the time needed to detect a predator thiscircuit improves the animal’s odds of living long enough to reproduce Theautomatic operations of System 1 reflect this evolutionary history

      Nocomparably rapid mechanism for recognizing good news has beendetected

      The brain responds quickly even to purely symbolic threats Emotionallyloaded words quickly attract attention and bad words (war crime) attractattention faster than do happy words (peace love)

      There is no real threat but the mere reminder of a bad event is treated in System 1 asthreatening

      The sensitivity to threats extends to the processing of statements ofopinions with which we strongly disagree

      The psychologist Paul Rozin an expert on disgust observed that asingle cockroach will completely wreck the appeal of a bowl of cherries but a cherry will do nothing at all for a bowl of cockroaches

      the negative trumps the positive in many ways and loss aversion is1 of many manifestations of a broad negativity dominance

      Bad Is Stronger Than Good

      “Bad emotions bad parents and bad feedback havemore impact than good 1s and bad information is processed morethoroughly than good The self is more motivated to avoid bad selfdefinitionsthan to pursue good 1s

      Bad impressions and badstereotypes are quicker to form and more resistant to disconfirmation thangood 1s ” They

      long term success of a relationshipdepends far more on avoiding the negative than on seeking the positive

      a stable relationship requires Brro Qres Brrthatgood interactions outnumber bad interactions by at least to

      Goals are Reference Points

      Loss aversion refers to the relative strength of 2 motives: we are drivenmore strongly to avoid losses than to achieve gains

      A reference point issometimes the status quo but it can also be a goal in the future: notachieving a goal is a loss exceeding the goal is a gain As we mightexpect from negativity dominance the 2 motives are not equallypowerful The aversion to the failure of not reaching the goal is muchstronger than the desire to exceed it

      Defending the Status Quo

      Animals including people fight harder to prevent losses than to achievegains

      In the world of territorial animals this principle explains the successof defenders A biologist observed that “when a territory holder ischallenged by a rival the owner almost always wins the contest—usuallywithin a matter of seconds

      Loss Aversion in the Law

      study of fairness ineconomic transactions

      Our article challenged what was thenaccepted wisdom among many economists that economic behavior isruled by self interest and that concerns for fairness are generally irrelevant

      We also relied on the evidence of survey responses for which economistsgenerally have little respect

      Speaking of Losses

      • “This reform will not pass Those who stand to lose will fightharder than those who stand to gain ”

        “Each of them thinks the other’s concessions are less painful They are both wrong of course It’s just the asymmetry of losses ”

        “They would find it easier to renegotiate the agreement if theyrealized the pie was actually expanding They’re not allocatinglosses; they are allocating gains ”

        “Rental prices around here have g1 up r Brro Qup r Brrecently but our tenants don’t think it’s fair that we should raise their rent too They feel entitled to their current terms ”

        “My clients don’t resent the price hike because they know mycosts have g1 up too They accept my right to stay profitable ”

  • Chapter 29 The Fourfold Pattern
    • The Fourfold Pattern
      • Whenever you form a global evaluation of a complex object—a car youmay buy your son in law or an uncertain situation—you assign weights toits characteristics This is simply a cumbersome way of saying that somecharacteristics influence your assessment more than others do Theweighting occurs whether or not you are aware of it; it is an operation ofSystem 1

        Your overall evaluation of a car may put more or less weight ongas economy comfort or appearance

        Your judgment of your son in lawmay depend more or less on how rich or handsome or reliable he is

        your assessment of an uncertain prospect assigns weights to thepossible outcomes

        The weights are certainly correlated with theprobabilities of these outcomes: a % chance to win a million is muchmore attractive than a % chance to win the same amount

    • Changing Chances
      • 1 reason for the popularity of the gambling metaphor in the study ofdecision making is that it provides a natural rule for the assignment ofweights to the outcomes of a prospect:

        the more probable an outcome themore weight it should have

        The expected value of a gamble is the averageof its outcomes each weighted by its probability

        The conclusion is straightforward: the decision weights that peopleassign to outcomes are not identical to the probabilities of theseoutcomes contrary to the expectation principle Improbable outcomes areoverweighted—this is the possibility effect

        Outcomes that are almostcertain are underweighted relative to actual certainty The expectationprinciple by which values are weighted by their probability is poorpsychology

    • Allais’s Paradox
      • Allais intended toshow that his guests were susceptible to a certainty effect and thereforeviolated expected utility theory and the axioms of rational choice on whichthat theory rests

        In problems A and B which would youchoose?

        A % chance to win $ OR % chance to win $

        B % chance to win $ OR % chance to win $

    • Decision Weights
    • The Fourfold Pattern
      • people are averse torisk when they consider prospects with a substantial chance toachieve a large gain They are willing to accept less than theexpected value of a gamble to lock in a sure gain

        When the top prize is very large ticket buyers appearindifferent to the fact that their chance of winning is minuscule Alottery ticket is the ultimate example of the possibility effect Withouta ticket you cannot win with a ticket you have a chance and whetherthe chance is tiny or merely small matters little Of course whatpeople acquire with a ticket is more than a chance to win; it is theright to dream pleasantly of winning

        People are willingto pay much more for insurance than expected value—which is howinsurance companies cover their costs and make their profits Hereagain people buy more than protection against an unlikely disaster;they eliminate a worry and purchase peace of mind

    • Gambling in the Shadow of the Law
    • Speaking Of The Fourfold Pattern
      • “He is tempted to settle this frivolous claim to avoid a freak loss however unlikely That’s overweighting of small probabilities Since he is likely to face many similar problems he would bebetter off not yielding ”

        “We never let our vacations hang Bima aang Bimon a last minutedeal We’re willing to pay a lot for certainty ”

        “They will not cut their losses so long as there is a chance ofbreaking even This is risk seeking in the losses ”

        “They know the risk of a gas explosion is minuscule but they wantit mitigated It’s a possibility effect and they want peace of mind ”

  • Chapter 30 Rare Events
    • Rare Events
      • how terrorism works and why it is so effective

        it induces an availability cascade

        An extremely vivid image of death anddamage constantly reinforced by media attention and frequentconversations becomes highly accessible especially if it is associatedwith a specific situation such as the sight of a bus

        The emotional arousalis associative automatic and uncontrolled and it produces an impulse forprotective action System 2 may “know” that the probability is low but thisknowledge does not eliminate the self generated discomfort and the wishto avoid it

        System 1 cannot be turned off

        The emotion is not onlydisproportionate to the probability it is also insensitive to the exact level ofprobability

        The originalformulation of prospect theory included the argument that “highly unlikelyevents are either ignored or overweighted ” but it did not specify theconditions under which 1 or the other will occur nor did it propose apsychological interpretation of it

    • Overestimation and Overweighting
      • People overestimate the probabilities of unlikely events

        People overweight unlikely events in their decisions

        Although overestimation and overweighting are distinct phenomena thesame psychological mechanisms are involved in both: focused attention confirmation bias and cognitive ease

        psychological mechanisms

        • focused attention
        • confirmation bias
        • cognitive ease
    • Vivid Outcomes
    • Vivid Probabilities
    • The more vivid description produces a higher decision weight forthe same probability
    • Decisions from Global Impressions
    • Speaking of Rare Events
      • “Tsunamis are very rare even in Japan but the image is so vividand compelling that tourists are bound to overestimate theirprobability ”

        “It’s the familiar disaster cycle Begin by exaggeration andoverweighting then neglect sets in ”

        “We shouldn’t focus on a single scenario or we will overestimateits probability Let’s set up specific alternatives and make theprobabilities add up to % ”

        “They want people to be worried by the risk That’s why theydescribe it as death per They’re counting ondenominator neglect

  • Chapter 31 Risk Policies
    • Risk Policies
      • Broad or Narrow?
      • narrow framing: a sequence of 2 simple decisions consideredseparately
      • broad framing: a single comprehensive decision with four options

      Samuelson’s Problem

      • century—famously asked a friend whether he would accept agamble on the toss of a coin in which he could lose $ or win $ Hisfriend responded

        “I won’t bet because I would feel the $ loss morethan the $ gain But I’ll take you on if you promise to let me make such bets ”

        Samuelson found hisfriend’s answer interesting and went on to analyze it He proved that undersome very specific conditions a utility maximizer who rejects a singlegamble should also reject the offer of many

        the offer of a hundred gambles is so attractive that no saneperson would reject it

        The notableaspect of this story is that Sam never wavers in his aversion to losses However the aggregation of favorable gambles rapidly reduces theprobability of losing and the impact of loss aversion on his preferencesdiminishes accordingly

        The main purpose of the mantra is to controlyour emotional response when you do lose

        If you can trust it to beeffective you should remind yourself of it when deciding whetheror not to accept a small risk with positive expected value

        Remember these qualifications when using the mantra

        It works when the gambles are genuinely independent of each other;it does not apply to multiple investments in the same industry whichwould all go bad together

        It works only when the possible loss does not cause you to worryabout your total wealth If you would take the loss as significant badnews about your economic future watch it!

        It should not be applied to long shots where the probability ofwinning is very small for each bet

        The combination of loss aversion and narrow framing is a costly curse Individual investors can avoid that curse achieving the emotional benefitsof broad framing while also saving time and agony by reducing thefrequency with which they check how well their investments are doing

        Closely following daily fluctuations is a losing proposition because thepain of the frequent small losses exceeds the pleasure of the equallyfrequent small gains

        Investors who getaggregated feedback receive such news much less often and are likely tobe less risk averse and to end up richer You are also less pr1 touseless churning of your portfolio if you don’t know how every stock in it isdoing every day (or every week or even every month)

        A commitment not tochange 1’s position for several periods (the equivalent of “locking in” aninvestment) improves financial performance

      Risk Policies

      Decision makers who are pr1 to narrow framing construct a preferenceevery time they face a risky choice They would do better by having a riskpolicy that they routinely apply whenever a relevant problem arises Familiar examples of risk policies are “always take the highest possibledeductible when purchasing insurance” and “never buy extendedwarranties ”

      Speaking of Risk Policies

      • “Tell her to think like a trader! You win a few you lose a few ”

        “I decided to evaluate my portfolio only once a quarter I am tooloss averse to make sensible decisions in the face of daily pricefluctuations ”

        “They never buy extended warranties That’s their risk policy ”

        “Each of our executives is loss averse in his or her domain That’s perfectly natural but the result is that the organization is nottaking enough risk ”

  • Chapter 32 Keeping Score
    • Keeping Score
      • Except for the very poor for whom income coincides with survival the mainmotivators of m1y seeking are not necessarily economic

        For thebillionaire looking for the extra billion and indeed for the participant in anexperimental economics project looking for the extra dollar m1y is aproxy for points on a scale of self regard and achievement

    • Mental Accounts
      • the disposition effect
        • finance research has documented a massive preference forselling winners rather than losers—a bias that has been given an opaquelabel: the disposition effect

          The disposition effect is an instance of narrow framing The investor hasset up an account for each share that she bought and she wants to closeevery account as a gain

          Another argument against selling winners is thewell documented market anomaly that stocks that recently gained in valueare likely to go on gaining at least for a short while The net effect is large:the expected after tax extra return of selling Tiffany rather than Blueberry is % over the next year

    • sunk cost fallacy
      • The decision to invest additional resources in a losing account when better investments are available is known as the sunk cost fallacy acostly mistake that is observed in decisions large and small Driving intothe blizzard because 1 paid for tickets is a sunk cost error

        The sunk cost fallacy keeps people for too long in poor jobs unhappymarriages and unpromising research projects

        Thesunk cost fallacy is identified and taught as a mistake in both economicsand business courses apparently to good effect:

    • Regret
      • Regret is an emotion and it is also a punishment that we administer toourselves

        The fear of regret is a factor in many of the decisions thatpeople make (“Don’t do this you will regret it” is a common warning) andthe actual experience of regret is familiar

        regret is“accompanied by feelings that 1 should have known better

        • ncesinking feeling by thoughts about the mistake 1 has madeand the opportunities lost by a tendency to kick 1self and to correct1’s mistake and by wanting to undo the event and to get a secondchance ” Intense regret is what you experience when you can most easilyimagine yourself doing something other than what you did

        Regret is 1 of the counterfactual emotions that are triggered by theavailability of alternatives to reality After every plane crash there arespecial stories about passengers who “should not” have been on the plane—they got a seat at the last moment they were transferred from anotherairline they were supposed to fly a day earlier but had had to postp1

        peopleexpect to have stronger emotional reactions (including regret) to anoutcome that is produced by action than to the same outcome when it isproduced by inaction

        the discrepancy between the 2 canbe the source of painful emotions The default option when you own a stockis not to sell it but the default option when you meet your colleague in themorning is to greet him Selling a stock and failing to greet your coworkerare both departures from the default option and natural candidates forregret or blame

        In a compelling demonstration of the power of default options participants played a computer simulation of jack Some playerswere asked “Do you wish to hit?” while others were asked “Do you wish tostand?” Regardless of the question saying yes was associated with muchmore regret than saying no if the outcome was bad!

        It is the departure from the default that produces regret

        peoplegenerally anticipate more regret than they will actually experience becausethey underestimate the efficacy of the psychological defenses they willdeploy—which they label the “psychological immune system ” Theirrecommendation is that you should not put too much weight on regret; evenif you have some it will hurt less than you now think

    • Speaking of Keeping Score
      • “He has separate mental accounts for cash and credit purchases I constantly remind him that m1y is m1y ”

        “We are hanging on to that stock just to avoid closing our mentalaccount at a loss It’s the disposition effect ”

        “We discovered an excellent dish at that restaurant and we nevertry anything else to avoid regret ”

        “The salesperson showed me the most expensive car seat andsaid it was the safest and I could not bring myself to buy thecheaper model It felt like a taboo tradeoff ”

  • Chapter 33 Reversals
    • Speaking of Reversals
      • “The BTU units meant nothing to me until I saw how much airconditioningunits vary Joint evaluation was essential ”

        “You say this was an outstanding speech because you comparedit to her other speeches Compared to others she was stillinferior ”

        “It is often the case that when you broaden the frame you reachmore reasonable decisions ”

        “When you see cases in isolation you are likely to be guided byan emotional reaction of System 1 ”

  • Chapter 34 Frames and Reality
    • Frames and Reality

      Emotional Framing

      A bad outcome is much moreacceptable if it is framed as the cost of a lottery ticket that did not win thanif it is simply described as losing a gamble

      We should not be surprised:losses evokes stronger negative feelings than costs Choices are notreality bound because System 1 is not reality bound

      framing study yielded three main findings

      A region that is commonly associated with emotional arousal (theamygdala) was most likely to be active when subjects’ choicesconformed to the frame

      A brain region known to be associated with conflict and self control(the anterior cingulate) was more active when subjects did not dowhat comes naturally—when they chose the sure thing in spite of itsbeing labeled LOSE

      The most “rational” subjects—those who were the least susceptibleto framing effects—showed enhanced activity in a frontal area of thebrain that is implicated in combining emotion and reasoning to guidedecisions

      Empty Intuitions

      Good Frames

      Speaking of Frames and Reality

      • “They will feel better about what happened if they manage toframe the outcome in terms of how much m1y they kept ratherthan how much they lost ”

        “Let’s reframe the problem by changing the reference point Imagine we did not own it; how much would we think it is worth?”

        “Charge the loss to your mental account of ‘general revenue’—you will feel better!”

        “They ask you to check the box to opt out of their mailing list Their list would shrink if they asked you to check a box to opt in!”

• Part V 2 Selves
  • Chapter 35 2 Selves
    • Principles of Morals andLegislation

      Nature has placed mankind underthe governance of 2 sovereign masters pain and pleasure

      2 Selves

      Experienced Utility

      • A decision maker who paysdifferent amounts to achieve the same gain of experienced utility (or bespared the same loss) is making a mistake

        You may find this observationobvious but in decision theory the only basis for judging that a decision iswrong is inconsistency with other preferences

      Experience and Memory

      How can experienced utility be measured?

      How should we answerquestions such as “How much pain did Helen suffer during the medicalprocedure?

      How much enjoyment did she get from her minutes onthe beach?

      “hedonimeter ”

      n imaginary instrument analogous to the devicesused in weather recording stations which would measure the level ofpleasure or pain that an individual experiences at any moment

      Peak end rule

      • Peak end rule: The global retrospective rating was well predicted bythe average of the level of pain reported at the worst moment of theexperience and at its end

      judgments duration weighted

      • computation of the “area under the curve” assigns equal weights to allmoments:
      • 2 minutes of pain at level is twice as bad as 1 minute atthe same level of pain

      Duration neglect:

      • Duration neglect: The duration of the procedure had no effectwhatsoever on the ratings of total pain

      2 selves

      experiencing self

      The experiencing self is the 1that answers the question: “Does it hurt now?”

      remembering self

      The remembering self is the1 that answers the question: “How was it on the whole?”

      Memories areall we get to keep from our experience of living and the only perspectivethat we can adopt as we think about our lives is therefore that of theremembering self

      difficulty of distinguishing memories from experiences

      listening raptly to a long symphony on a disc that was scratchednear the end producing a shocking sound and he reported that the badending “ruined the whole experience ” But the experience was not actuallyruined only the memory of it

      The experiencing self had had an experiencethat was almost entirely good and the bad end could not undo it becauseit had already happened

      My questi1r had assigned the entire episode afailing grade because it had ended very badly but that grade effectivelyignored minutes of musical bliss Does the actual experience count fornothing?

      Confusing experience with the memory of it is a compelling cognitiveillusion—and it is the substitution that makes us believe a past experiencecan be ruined

      The experiencing self does not have a voice

      Theremembering self is sometimes wrong but it is the 1 that keeps scoreand governs what we learn from living and it is the 1 that makesdecisions

      What we learn from the past is to maximize thequalities of our future memories not necessarily of our future experience This is the tyranny of the remembering self

      Which Self Should Count?

      subjects did what came naturally: they chose to repeatthe episode of which they had the less aversive memory

      The subjectsknew quite well which of the 2 exposures was longer—we asked them—but they did not use that knowledge

      Their decision was governed by asimple rule of intuitive choice: pick the option you like the most or dislikethe least Rules of memory determined how much they disliked the 2options which in turn determined their choice The cold hand experiment like my old injections puzzle revealed a discrepancy between decisionutility and experienced utility

      In 1 experiment rats were consistently exposed to a sequencein which the onset of a light signals that an electric shock will soon bedelivered The rats quickly learned to fear the light and the intensity of theirfear could be measured by several physiological responses The mainfinding was that the duration of the shock has little or no effect on fear—allthat matters is the painful intensity of the stimulus

      Other classic studies showed that electrical stimulation of specific areasin the rat brain (and of corresponding areas in the human brain) produce asensation of intense pleasure so intense in some cases that rats who canstimulate their brain by pressing a lever will die of starvation without takinga break to feed themselves

      Pleasurable electric stimulation can bedelivered in bursts that vary in intensity and duration Here again onlyintensity matters Up to a point increasing the duration of a burst ofstimulation does not appear to increase the eagerness of the animal toobtain it The rules that govern the remembering self of humans have along evolutionary history

      Biology vs Rationality

      • 2 principles of memory
        • duration neglect and the peak end rule

        Themechanisms are different but the outcome is the same: a decision that isnot correctly attuned to the experience

        Decisions that do not produce the best possible experience anderr1ous forecasts of future feelings—both are bad news for believers inthe rationality of choice

        The cold hand study showed that we cannot fullytrust our preferences to reflect our interests even if they are based onpersonal experience and even if the memory of that experience was laiddown within the last quarter of an hour!

        Tastes and decisions are shapedby memories and the memories can be wrong

        The evidence presents aprofound challenge to the idea that humans have consistent preferencesand know how to maximize them a cornerst1 of the rational agentmodel An inconsistency is built into the design of our minds

        We havestrong preferences about the duration of our experiences of pain andpleasure We want pain to be brief and pleasure to last But our memory afunction of System 1 has evolved to represent the most intense moment ofan episode of pain or pleasure (the peak) and the feelings when theepisode was at its end

        A memory that neglects duration will not serve ourpreference for long pleasure and short pains

        Speaking of 2 Selves

        • “You are thinking of your failed marriage entirely from theperspective of the remembering self A divorce is like asymphony with a screeching sound at the end—the fact that itended badly does not mean it was all bad ”

          “This is a bad case of duration neglect You are giving the goodand the bad part of your experience equal weight although thegood part lasted ten times as long as the other ”

  • Chapter 36 Life as a Story
    • Life as a Story
      • Early in the days of my work on the measurement of experience I sawVerdi’s opera La Traviata Known for its gorgeous music it is also amoving story of the love between a young aristocrat and Violetta a womanof the demimonde The young man’s father approaches Violetta andconvinces her to give up her lover to protect the honor of the family and themarriage prospects of the young man’s sister In an act of supreme selfsacrifice Violetta pretends to reject the man she adores She soonrelapses into consumption (the nineteenth century term for tuberculosis) Inthe final act Violetta lies dying surrounded by a few friends Her belovedhas been alerted and is rushing to Paris to see her H Kto earing the news she is transformed with hope and joy but she is also deteriorating quickly

        No matter how many times you have seen the opera you are gripped bythe tension and fear of the moment: Will the young lover arrive in time?There is a sense that it is immensely important for him to join his belovedbefore she dies He does of course some marvelous love duets are sung and after minutes of glorious music Violetta dies

        Why do we care so muchabout those last minutes?

        Duration neglect is normal in a story and the ending often definesits character

        Duration neglect is normal in a story and the ending often definesits character The same core features appear in the rules of narratives andin the memories of colonoscopies vacations and films This is how theremembering self works: it composes stories and keeps them for futurereference

    • Amnesic Vacations
    • Speaking of Life as a Story
      • “He is desperately trying to protect the narrative of a life ofintegrity which is endangered by the latest episode ”

        “The length to which he was willing to go for a 1 night encounteris a sign of total duration neglect ”

        “You seem to be devoting your entire vacation to the constructionof memories Perhaps you should put away the camera and enjoythe moment even if it is not very memorable?”

        “She is an Alzheimer’s patient She no longer maintains anarrative of her life but her experiencing self is still sensitive tobeauty and gentleness ”

  • Chapter 37 Experienced Well Being
    • Experienced Well Being
      • All things considered how satisfied are you with your life as awhole these days?

        focused on the well being of the experiencing self Iproposed that it made sense to say that “Helen was happy in the month ofMarch” if

        she spent most of her time engaged in activities that she wouldrather continue than stop little time in situations she wished toescape and—very important because life is short—not too muchtime in a neutral state in which she would not care either way

        flow

        • flow—a state thatsome artists experience in their creative moments and that many otherpeople achieve when enthralled by a film a book or a crossword puzzle:interruptions are not welcome in any of these situations

        Experienced Well Being

        • measure of the well being of the experiencing self

          A continuousrecord of experience was unfortunately impossible—a person cannot livenormally while constantly reporting her experiences

        Experience sampling

        • intensity of various feelings: happiness tension anger worry engagement physical pain

        Day Reconstruction Method (DRM)

        • CantrilSelf Anchoring Striving Scale

          Please imagine a ladder with steps numbered from zero at thebottom to at the top The top of the ladder represents the bestpossible life for you and the bottom of the ladder represents theworst possible life for you On which step of the ladder would yousay you personally feel you stand at this time?

          Some aspects of life have more effect on the evaluation of 1’s life thanon the experience of living

          Educational attainment is an example

          Moreeducation is associated with higher evaluation of 1’s life but not withgreater experienced well being

          n the United States themore educated tend to report higher stress

          ill healthhas a much stronger adverse effect on experienced well being than on lifeevaluation

          Living with children also imposes a significant cost in thecurrency of daily feelings—reports of stress and anger are commonamong parents but the adverse effects on life evaluation are smaller

          Religious participation also has relatively greater favorable impact on bothpositive affect and stress reduction than on life evaluation

          religion provides no reduction of feelings of depression or worry

          Can m1y buy happiness?

          Theconclusion is that being poor makes 1 miserable and that being richmay enhance 1’s life satisfaction but does not (on average) improveexperienced well being

          Severe poverty amplifies the experienced effects of other misfortunes oflife

          Why do these added pleasures not show up in reports ofemotional experience?

          A plausible interpretation is that higher income isassociated with a reduced ability to enjoy the small pleasures of life

          There is a clear contrast between the effects of income on experiencedwell being and on life satisfaction

          Speaking of Experienced Well Being

          “The objective of policy should be to reduce human suffering Weaim for a lower U index in society Dealing with depression andextreme poverty should be a priority ”

          “The easiest way to increase happiness is to control your use oftime Can you find more time to do the things you enjoy doing?”

          “Beyond the satiation level of income you can buy morepleasurable experiences but you will lose some of your ability toenjoy the less expensive 1s ”

  • Chapter 38 Thinking About Life
    • Thinking About Life

      In the DRM studies there was no overall difference in experienced wellbeingbetween women who lived with a mate and women who did not Thedetails of how the 2 groups used their time explained the finding

      Women who have a mate spend less time al1 but also much less timewith friends

      They spend more time making love which is wonderful butalso more time doing housework preparing food and caring for children all relatively unpopular activities

      And of course the large amount of timemarried women spend with their husband is much more pleasant for somethan for others

      Experienced well being is on average unaffected bymarriage not because marriage makes no difference to happiness butbecause it changes some aspects of life for the better and others for theworse

      The importance that people attached to income at age alsoanticipated their satisfaction with their income as adults We compared lifesatisfaction in a high income group (more than $ householdincome) to a low to moderate income group (less than $ ) Theeffect of income on life satisfaction was larger for those who had listedbeing well off financially as an essential goal: point on a point scale

      The Focusing Illusion

      • focusing illusion

        Nothing in life is as important as you think it is when you arethinking about it

        How much pleasure do you get from your car?

        When do you getpleasure from your car?

        Adaptation to a new situation whether good or bad consists in large partof thinking less and less about it In that sense most long termcircumstances of life including paraplegia and marriage are part timestates that 1 inhabits only when 1 at JghtA a at Jghttends to them

        This question almost certainly made you think of a paraplegic who iscurrently thinking about some aspect of his condition

        Your guess about aparaplegic’s mood is therefore likely to be accurate in the early days aftera crippling accident; for some time after the event accident victims think oflittle else

        Pain and noise are biologically set to be signals that attract attention anddepression involves a self reinforcing cycle of miserable thoughts

        There istherefore no adaptation to these conditions

        Adaptation to a new situation whether good or bad consists in large partof thinking less and less about it

        miswanting

        describe bad choices that arise from errors of affective forecasting

        The focusing illusion (whichGilbert and Wilson call focalism) is a rich source of miswanting Inparticular it makes us pr1 to exaggerate the effect of significantparticular it makes us pr1 to exaggerate the effect of significantpurchases or changed circumstances on our future well being

        The focusing illusion creates a bias in favor of goods and experiences thatare initially exciting even if they will eventually lose their appeal Time isneglected causing experiences that will retain their attention value in thelong term to be appreciated less than they deserve to be

      Time and Time Again

      • The role of time has been a refrain in this part of the book It is logical todescribe the life of the experiencing self as a series of moments each witha value The value of an episode—I have called it a hedonimeter total—issimply the sum of the values of its moments But this is not how the mindrepresents episodes The remembering self as I have described it alsotells stories and makes choices and neither the stories nor the choicesproperly represent time In storytelling mode an episode is represented bya few critical moments especially the beginning the peak and the end Duration is neglected

      Speaking of Thinking About Life

      • “She thought that buying a fancy car would make her happier butit turned out to be an error of affective forecasting ”

        “His car broke down on the way to work this morning and he’s ina foul mood This is not a good day to ask him about his jobsatisfaction!”

        “She looks quite cheerful most of the time but when she is askedshe says she is very unhappy The question must make her thinkof her recent divorce ”

        “Buying a larger house may not make us happier in the long term We could be suffering from a focusing illusion ”

        “He has chosen to split his time between 2 cities Probably aserious case of miswanting ”

  • Conclusions
    • ConclusionsI

      System 1 which does the fast thinking

      System 2 which does the slow thinking monitorsSystem 1

      The 2 selves

      • the remembering self
        • whichkeeps score and makes the choices

        2 Selves

        Duration neglect and the peak endrule in the evaluation of stories both at the opera and in judgments of Jen’slife are equally indefensible

        It does not make sense to evaluate an entirelife by its last moments or to give no weight to duration in deciding whichlife is more desirable

        The remembering self is a construction of System 2 However thedistinctive features of the way it evaluates episodes and lives arecharacteristics of our memory Duration neglect and the peak end ruleoriginate in System 1 and do not necessarily correspond to the values ofSystem 2 We believe that duration is important but our memory tells us itis not

        Econs and Humans

        theexperiencing self which does the living

      2 Systems

      The upshot is that it is much easier to identify aminefield when you observe others wandering into it than when you areabout to do so Observers are less cognitively busy and more toinformation than actors

      Organizations are better than individuals when it comes to avoidingerrors because they naturally think more slowly and have the power toimpose orderly procedures

  • Appendix A: Judgment Under Uncertainty
    • Heuristics and Biases
    • Representativeness
    • Availability
    • Adjustment and Anchoring
    • Discussion
    • Summary
  • Appendix B: Choices Values And Frames
    • Risky Choice
    • Framing of Outcomes
    • The Psychophysics of Chances
    • Formulation Effects
    • Transactions and Trades
    • Losses and Costs
    • Concluding Remarks
    • References
    • Acknowledgments
    • Notes
• Chapters References
  • Introduction
  • : The Characters of the Story
  • : Attention and Effort
    • : The Lazy Controller
    • : The Associative Machine
    • : Cognitive Ease
    • : Norms Surprises and Causes
    • : A Machine for Jumping to Conclusions
    • : How Judgments Happen
    • : Answering an Easier Question
    • : The Law of Small Numbers
  • : Anchors
  • : The Science of Availability
    • : Availability Emotion and Risk
    • : Tom W’s Specialty
    • : Linda: Less is More
    • : Causes Trump Statistics
    • : Regression to the Mean
    • : Taming Intuitive Predictions
    • : The Illusion of Understanding
    • : The Illusion of Validity
  • : Intuitions vs Formulas
    • : The Outside View
    • : The Engine of Capitalism
    • : Bernoulli’s Errors
    • : Prospect Theory
    • : The Endowment Effect
    • : Bad Events
    • : The Fourfold Pattern
      • : Rare Events
    • : Risk Policies
    • : Keeping Score
      • : Reversals
      • : Frames and Reality
      • : 2 Selves
      • : Life as a Story
      • : Experienced Well Being
      • : Thinking About Life
  • Conclusions
  • Index
• What do you think about the book?
• Conclusions:
• Recommendations:
• Compiled By:
  • blindcaveman.wordpress.com
  • Rigel Arcayan