Friday, January 18, 2013

Thinking fast and slow about the world

Did you know that if you make people think about old age, they will walk more slowly? Or if you have a poll about more money to the schooling system more people will support that proposal if the poll is in a school than in the municipal building? Those are effects of what is called priming

I just read Thinking Fast and Slow by Daniel Kahneman, recipient of the Nobel Prize in Economic Sciences. He shows that if you make people think about ”money”, even by simply having dollar bills in your screen saver, people don’t only become more interested in money they also become more selfish, they are less inclined to help someone in need and show more preference for being alone. In short, the thought of money feeds individualism.

Most of the book is about how we make choices and how we form our views. Kahneman shows how intuition and emotion, stereotypes, often rule our behaviour, also when we believe that we are acting ”rationally”. Here he also deliver a criticism of the idea that people are governed by rational economic assessments, which is a cornerstone of the neo-liberal ideas, in particular those expressed by Milton Friedman at the Chicago School of Economics.

Actually, not even in the very heartland of economics are people very rational. Kahneman cites research that examined 10,000 individual private investors over seven years. On average, the shares that individual traders sold did better than those they bought, by a very substantial margin: 3.2 percentage points per year. “It is clear,” concludes Kahneman, “that for the large majority of individual investors, taking a shower and doing nothing would have been a better policy than implementing the ideas that came to their mind.”

Cabbies in New York work fewer hours in rainy days despite the fact that they earn the most per hour those days, while they sit and sweat in empty cabs in sunny days instead of going to the beach. And even when it comes to simple buying and selling we all have a tendency to value an item we have higher than what we would be willing to offer to buy it.

Kahneman says that the robots of neoliberal economics, Econs he calls them, are not real Humans. I believe that most economists and their study objects are subject to ”priming” which makes them much inclined to see all aspects of society from the perspective of classic economic theory. The bigger tragedy is that by the constant bombardment of economistic messages combined with the commercialism of the market place taking over almost all space and time of our lives, the idea that we all act as Econs is self-fulfilling to some extent.I write about this in Garden Earth:

Simpleton economicists and their popularizers want to explain all human actions by economic drivers. Also, many Marxists tend to see the acts of different groups to be fully dependent on their economic standing in relation to production factors—here the concept of ‘class’ is critical. The reasoning goes from self-evident things to very cumber­some explanatory models. ... The basic error is the perception that economic drivers are superior to all other drivers and that all other drivers can be ‘trans­lated’ into money. The strength in the reasoning is that the economic driver is a forceful paradigm with many self-reinforcing loops. And as a society is built along this paradigm, human beings consciously and subconsciously create a world that rewards exactly this; in such a way it becomes self-fulfilling. But this is not truer than the statement that the most important driver for human development is the ability of an individual to throw a spear farther than anyone else. This ability was most likely very important in a hunter society or a war society, much more important than the ability to amass wealth.

The book
Thinking Fast and Slow is very comprehensive, even though Kahneman, in typical modesty, says the target for the book is to be relevant for the gossip at the water cooler. The largest part of the book is about two sorts of thought processes, which Kahneman calls System 1 and System 2, or “fast” and “slow” in the words of the title of the book. System 1 is intuitive, often unconscious, relying on past association of ideas. System 2 is conscious, reasoning, full of effort but often lazy. For instance, even experts are rarely basing their reasoning of consideration of statistical evidence, and even scientists make a lot of errors. Kahneman readily admits that he himself is also a victim. While we might believe that it would be best to suppress System 1 and let System 2 take command all the time, Kahneman thinks that System 1 is the “hero of the book”; the skilled craftsman or professional certainly couldn’t be what they are if they didn’t work also with intuition.  

We hugely underestimate the role of chance in life. As the example of fund managers above shows you'd do just as well if you entrusted your financial decisions to a monkey throwing darts at a board. And again and again, we are fooled by our low understanding of sampling and statistics. The fact that most of the best performing schools are small is taken as a proof that small schools are better, while in reality, Kahneman says, smaller samples will always produce more variation. Not only are the best schools small, also the worst are small. Bigger schools represent a bigger sample and therefore they tend to move towards the average. The same goes for incidences of a disease; the highest rates will always come from small population groups. There are certainly a lot of interesting facts in the book.

But frankly, the book is hyped. It is described as an ”immediate classic”, ”groundbreaking”, and is compared to the works of Darwin, Smith or Kopernikus etc.  There is not much new in the book for those that have read their behaviour psychology and biology. The discussion about System 1 and System 2 are long-winded while the examples given are predominantly tests in simple game and choice experiments from universities.

The examples from real life situations are just so more interesting. For instance, the fact that Israeli parole judges would grant parole to almost 65 per cent of the cases after the judges had eaten a meal, but almost zero by the time the next meal was due! Or that the only thing that is worse at work than being alone is that your boss is with you. 

While too much text is spent on the two systems, Kahneman takes up very interesting topics towards the end of the book, but here in a too rhapsodic manner. He discusses risk assessment as well as happiness and well-being. In particular the latter deserves a better analysis than the one in Kahneman’s book. Still, the book is worth reading, and Kahneman has a humble and human attitude and sound scepticism towards overconfident science.  And you can always discuss it with your colleagues at the water cooler.  

Some reviews of the book
Svenska Dagbladet (Swedish)
Aftonbladet (Swedish)


  1. The book is written to keep the mind captivated in understanding how the mind works. Each theory, each information is empirically supported. It equips you with the technical terms for the everyday psychological stuff you knew happened but did not know how or why.
    A very engaging read!

  2. In the land of homo economicus-believing economist, the one-eyed man with common sense is king.

    Which falls out from the first principle of economics: economics has never discovered anything that is both true and non-trivial.