Thinking Fast and Slow How Your Brain Thinks

Sunk-Cost Fallacy and Regret

  • The decision to invest additional resources in a losing account when better investments are available, is known as the sunk-cost fallacy. Boards will often fire a CEO who is encumbered by prior decisions and reluctant to cut losses. This fallacy keeps people in poor jobs, unhappy marriages, and unpromising research projects.
  • Regret is an emotion, and it is also a punishment that we administer to ourselves. We have stronger emotional reactions to outcomes produced by action than to those produced by inaction. We also regret actions out of the norm more if the result doesn’t work. Unfortunately, we anticipate more regret than we actually experience because of the efficacy of our psychological defenses. Bottom line, regret is overrated. Don’t waste your time.

Context and Frames

  • Individual choices one makes depends heavily on the context in which the choice is made. A number of interesting experiments demonstrate this. When faced with side by side judgments, people make different decisions than when faced with the items in isolation. Since juries are not allowed to compare damage awards to other decided cases, they can come up with some wild awards.
  • Kahneman uses multiple examples from the research to make the case that policymakers and service providers need to pay attention to how questions are framed. The most dramatic example comes from organ donation plans in various locals. If you have to opt-in you are less likely to be a donor that if you have to opt-out. Sweden has 86% rate with an opt-out plan while neighboring Denmark has a 4% rate with their opt-in plan.

Peak-End Rule and Duration Neglect

  • Human memory has evolved to give increased weight to the most intense moment of an episode of pain or pleasure (the peak) and the feelings when the episode ends. The terms Peak-End Rule and Duration Neglect arise from these observations. This is a function of System 1. It seems are are not good at taking the sum of all positive or negative experiences. This would be analogous to measuring the area under a curve (integration).
  • We have two selves. One that experiences life in the moment and one that remembers it. The former monitors pleasure and pain in real time while the later is prone to suffer from the peak-end rule and the duration neglect. For the remembering self, there is no point taking a vacation unless you have fond memories at the end.

Experienced Well-Being and Life Satisfaction

  • Kahneman discusses life satisfaction, which depends on what you remember, and experienced well-being, which deals with how you feel as you move through life. Being rich doesn’t improve your experienced well-being, but it creates high life satisfaction. Being poor, however, makes one miserable on both accounts. On average, once you get to a yearly income of about $75,000 in high-cost areas, more money does not make daily life better, but it does increase life satisfaction. Being ill has the most impact (negative) on experienced well-being while being with friends is second (positive). In order to experience joy in something, you have to attend to it. Eating while doing something else will reduce the pleasure that comes from eating.

Thinking About Life

  • Your satisfaction with life depends to a large extent on goals you set and how well you do reaching them. If your goals are too difficult you are likely to live a dissatisfied adult life. Kahneman also believes that life satisfaction has a large genetic component.
  • Any aspect of life to which attention is directed will loom large in your global evaluation. This is called the focusing illusion. This means that nothing in life is as important as you think it is when you are thinking about it. New situations impact your thinking a great deal. As time goes by, you adapt due to the fact you think less and less about it. For example, paraplegics’ moods gradually improve as they think about their conditions less. The opposite is true for lottery winners.

Final Words

  • Our System 1 is our automatic system and it is responsible for a lot of what we do wrong. It is also responsible for what we do right, which is most of what we do. Thoughts and actions guided by System 1 are generally on the mark. Kahneman admits that it is even hard for him to educate his System 1 and know when to slow down and bring System 2 into play, but he has made progress and encourages the readers to do the same.
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5 Responses to “Thinking Fast and Slow How Your Brain Thinks”

  1. Mark Thompson says:

    Correction: December 18, 2011

    A review on Nov. 27 about “Thinking, Fast and Slow” erroneously attributed a distinction to the book’s author, Daniel Kahneman, who won the Nobel in economic science in 2002. His being a psychologist was indeed unusual but did not make his award “unique in the history of the prize.” Another psychologist, Herbert A. Simon, won the award in 1978. (Simon, a polymath and interdisciplinarian, was also an economist, a political scientist and a sociologist.)

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    ““Thinking Fast and Slow How Your Brain Thinks

  3. I read a review in the New York Times.

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