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Thinking, Fast and Slow is a 2011 popular science book by psychologist Daniel Kahneman. The book's main thesis is a differentiation between two modes of thought: "System 1" is fast, instinctive and emotional; "System 2" is slower, more deliberative, and more logical.
The book delineates rational and non-rational motivations or triggers associated with each type of thinking process, and how they complement each other, starting with Kahneman's own research on loss aversion.
From framing choices to people's tendency to replace a difficult question with one that is easy to answer, the book summarizes several decades of research to suggest that people have too much confidence in human judgment.
Kahneman performed his own research, often in collaboration with Amos Tversky, which enriched his experience to write the book.
The book was a New York Times bestseller and was the 2012 winner of the National Academies Communication Award for best creative work that helps the public understanding of topics in behavioral science, engineering and medicine.
After having read the book page by page, I, hereby, list down 46 earnest lessons from this awesome book.
These are the examples that stuck with me.
These learnings are worded and appended in a way that makes it easier for most of us to understand and absorb.
If you are interested in reading about such learning from other all-time best-selling books, you may click here.
For now, if you wish to know about 'Thinking. Fast and Slow, and what I learned from it, here you go...
1/ There are two systems working in our brain - System 1 - which is automated, fast, doesn't need attention, and System 2 - which is slow, needs full attention, and is not automated.
2/ When we are paying full attention, then all other senses of hearing, seeing etc. seem to become dormant.
3/ System 1 has biases and has little understanding of logic and data. System 1 can never be turned off.
4/ One of the tasks of System 2 is to overcome the impulses of system 1. In other words, system 2 is in charge of self-control.
5/ Pupils of our eyes (inner black circle inside the iris circle) are sensitive indicator of our mental effort. The more the mental effort, the more the dilation (larger than normal pupil).
6/ System 1 takes over in emergencies, thus taking action even before we realize the problem.
7/ System 2 is the only one that follows rules and logics, makes comparisons and then takes informed decisions.
8/ When you are actively involved in difficult cognitive reasoning or engaged in a task that requires self-control, your blood glucose level drops. Such tasks require energy. By replenishing the body with glucose, one can refocus on such tough tasks with the same enthusiasm.
9/ Impulsive people are more like System 1. People with calmness and stability are more like System 2.
10/ Words evoke memories which evoke emotions which in turn evoke facial expressions and other reactions such as getting tensed up. The facial expression intensifies the feeling which intern reinforce compatible ideas. All this happens quickly, and unconsciously, and unwillingly, by System 1. Now, do you realize the power of words, affirmations, the company you keep?
11/ Feeling amused can make you physically smile and smiling can make you feel amused. Actions create feelings and vice versa, and it can trigger a chain reaction. This is called as the priming effect.
12/ System 1 measures level of cognitive ease, and based on the measurement, it decides to take help from System 2. The easier the measurement, System 1 will more or less handle it independently. An oft repeated familiar situation, large fonts, simple calculations is an example of cognitive ease.
13/ A reliable way to make people believe in falsehood is frequent repetition because familiarity is not easily distinguished from truth.
14/ Drinking alcohol diminishes your connection with System 2. Your responses are mostly via System 1
15/ Heart rate also indicates effort being spent. The more the effort, the more the dilation of pupils. the more the heart beats.
16/ A simple addition exercise (which is effortful and done by System 2) could increase the pupil size by as much as 50% and heart rate by up to 10 beats per minute. The reversion is instant once the problem is resolved, or you give up.
17/ As you repeatedly do the same activity, your skill increases, and your effort decreases. System 1 slowly gets adept to handling a task which you are skilled at. Developing skill, thus means, moving tasks from System 2 to System 1
18/ Nervous system consumes more glucose than most other parts of the body. When you are engaged in tasks that require self-control or difficult cognitive reasoning, your blood glucose drops.
19/ Mood effects the operation of System 1. When we are unhappy, we lose touch with our intuition i.e. System 1
20/ Any number that you are asked to consider as a possible solution to an estimation problem will induce an anchoring effect. And your answer would be closer to the possible solution. Anchoring neatly explains why you are likely to drive too fast when you come of the highway on to city roads specially if you are talking to someone as you drive.
21/ To arrive at estimated numbers, people usually start with anchors and then keep moving away from the anchors until they reach the boundary of uncertainty.
22/ Statistically, everything regresses to the mean. So, if we see a good performance and appreciate the performance, we are likely to get a relatively poor performance next time. This does not mean that appreciation leads to poor performance. Actually, appreciation may not have any connect with the performance and the performance is just regressing to the mean. The more extreme the results the higher the regression to the mean.
23/ One person sells, and the other buys a share. Two people, with access to almost the same data, think so differently about the same company at the same time. There are millions of such pairs of buyers & sellers every day. Shed off your skill illusions. You will need luck.
24/ In a paper titled 'Trading is hazardous to your wealth', it has been shown that on an average the most active traders get the poorest results while the investors who traded the least got the highest returns.
25/ In another paper titled 'Boys will be boys', it is shown that men acted on their useless ideas significantly more often than women and that as a result women achieved better investment results than men.
26/ Individual investors like to lock in their gains by selling winners i.e. the stocks that have appreciated since they were purchased and they hang on to their losers. Unfortunately for them, recent winners tend to do better than recent losers in the short term, so individuals sell the wrong stocks. They also buy the wrong stocks because the flocked to companies that draw the attention because they are in the news.
27/ The illusion that we have understood the past gives us a false overconfidence about our ability to predict the future.
28/ Experts are more wrong in their predictions than non-experts because of the false sense of overconfidence they exhibit on their own abilities.
29/ Your thinking and ideas can be 'primed' by what happens just before you start thinking. Looking at old age images can lead you to walk slowly. Priming can directly impact your actions without you being consciously aware of the same. Money primed people tend to promote individualism, be more independent.
30/ What you see is all there is. We can see only one thing at a time. 90% fat free gives a better feeling than 10% fat because what we see in the former case (fat free) is what we think is all that exists. Same way, 90% survival rate sounds better than 10% mortality rate.
31/ System 2 listens and answers all questions after analyzing (using cognitive power). System 1 continuously keeps looking outside and inside and keep creating responses irrespective.
32/ Samples need to be sufficiently large to reduce the risk of sampling luck. Most focus on the narrative created rather than the sample size. An adequate size may create a completely different narrative.
33/ Much of what we see in life is random, but humans tend to classify them in a specific order.
34/ Anchoring effect leads humans to anchor their estimate on a number even if that anchor number is known to have no correlation to the solution. The only antidote to anchoring effect is deliberately triggering System 2 to work hard and think of a reasonable number irrespective of the anchor.
35/ Availability bias pushes us to take biased decisions based on availability of information. Two recent air crashes in the news can push you to postpone your trip.
36/ Less is More probable. A person is a teacher, or a person is a Hindi teacher. What's more probable? The option that gives less information is always more probable.
37/ System 2 can be consciously triggered into action by incentivizing the situation with comparison or by rewards.
38/ Halo effect makes us believe that good people can only do good things and bad people cannot do good things. People are shocked to know that Hitler loved dogs and children.
39/ Hindsight bias and Outcome Bias makes us blame the ones who failed, for reasons that we believe are easily detectable. At the same time, we give too little credit to success stories believing then to be obvious.
40/ Formulas work far better than the best of the experts since they are not prone to biases, emotions and surroundings.
41/ Optimism is not the best thing for planning, but a great asset while executing the plan.
42/ Loss aversion is a key attribute of System 1
43/ The endowment effect is a cognitive bias where individuals place a higher value on items they own compared to identical items they don't own. This means they are less willing to sell something they possess for a certain price than they would be willing to pay to acquire it. It's a psychological tendency that makes people reluctant to part with their possessions, even if it's economically advantageous to do so.
44/ Demand Supply based pricing is fine but if it leads to exploitation (prices are increased not because they must be, but because there is a choice), then it's unfair and needs to be opposed.
45/ Denominator neglect: 1 red ball out of 8 vs 8 red balls out of 100. A lot of people chose the second option because of denominator neglect. A vaccine with 0.001% chance of failure is generally considered safe. But alarm bells ring when it says that 1 out of 1000 children will die. People see the absolute number 1 and neglect the denominator. Absolute numbers get more weightage than percentages or probabilities. System 1 finds it tough to calculate and compare.
46/ Disposition Effect: If we are making a profit of Rs 5000 in one stock and a loss of Rs 5000 in another stock, which one are we likely to sell if we urgently need some money? It is likely to be the winner because we don't want to be emotionally labelled as a loser. The right way is to try and visualize the future of these stocks and then take a call. In the worst case, understand that selling a winner exposes you to taxes and selling a loser helps you save taxes.
- Book: Happiness Unlimited
- Book: The Autobiography of a Stock
- Book: FOOPS!
- Blogpost: 15 Messages from the Book "The Art of Thinking Clearly"
If you are interested in reading about such learning from other all-time best-selling books, you may click here.
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