Daniel Kahneman

sureshvn

April 2

Some insights from Thinking fast and slow:
- Anchor your judgment of the probability of an outcome on a plausible base rate. Question diagnosticity of your judgment.
- " This start up looks as if it could not fail, but the base rates of success in the industry is extremely low. How do we know this case is different.?"
-" They keep making the same mistake: predicting rare events from weak evidence. When the evidence is weak, one should stick with base rates."
-An important principle of skill training : rewards for improved performance work better than punishment of mistakes.
- A significant fact of the human condition: the feedback to which life exposes us is perverse. Because we tend to be nice to other people when they please us and nasty when they do not, we are statistically punished for being nice and rewarded for being nasty.
- The "Sports Illustrated jinx." the claim that an athlete whose picture appears on the cover of magazine is doomed to perform poorly in the following season. Overconfidence and the pressure of meeting expectations are often offered as explanations. But there is a simpler account of the jinx: an athlete who gets to be on the cover of Sports Illustrated must have performed exceptionally well in the preceding season, probably with the assistance of a nudge from luck - and luck is fickle.

― Daniel Kahneman, Thinking, Fast and slow

Many more. I have been fascinated as a layperson by Daniel kahneman's work on two modes of thinking - System 1 and System 2.

System 1 - The instant, unconscious, automatic, emotional and intuitive thinking.
System 2 - The slow, deliberate, rational, reasoning and conscious thinking.

I revisited and listened to great psychologist/ economist's 2002 Nobel prize lecture on bounded rationality few times as read the news of great man's demise. The work is towering and created a new field of behavioral economics. I do have a digital copy of Thinking, Fast and slow. I last saw a Mckinsey Quaterly interview on Noise: A flaw in human judgment by Daniel Kahneman, Olivier Sibony and Cass Sunstein. The interview had Sibony and Kahneman. I guess Kahneman was 88 years old then and admired his intellectual faculty and work ethic. He is one of my intellectual heroes.

I must concede have not read the book - Noise. Though read articles and interviews by Kahneman, Sibony and Sunstein. Whenever lose jobs my whole life comes to an halt and have not been able to buy books. I hope to be back to dignified life soon.

Some more insights:

- A basic limitation in the ability of our mind to deal with small risks: we either ignore them altogether or give them far too much weight - nothing in between.

- We tend to overweight small risks and are willing to pay far more than expected value to eliminate them altogether.
-When an unlikely event becomes the focus of attention, we will assign it much more weight than its probability deserves.
-Reducing or mitigating the risk is not adequate; to eliminate the worry the probability must be brought down to zero.
-People overestimate the probabilities of unlikely events. People overweight unlikely events in their decisions.

-What is the probability that a baby born in your local hospital will be released within three days? You were asked to estimate the probability of the baby going home, but you almost certainly focused on the events that might cause a baby not to be released within the normal period. Our mind has a useful capability to focus spontaneously on whatever is odd, different, or unusual.
-The unlikely event became focal.
-Your estimate of the frequency of problems was too high.
-The successful execution of a plan is specific and easy to imagine when one tries to forecast the outcome of a project. In contrast, the alternative of failure is diffuse, because there are innumerable ways for things to go wrong. Entrepreneurs and the investors who evaluate their prospects are prone both to overestimate their chances and to overweight their estimates.
― Daniel Kahneman, Thinking, Fast and slow

From the 2002 Nobel lecture on bounded rationality:

Intuitive thinking:

-Some of the highly skilled cognitive activities are intuitive

playing chess at the master level

appreciating social situations

-But intuition is prone to systematic biases and errors:

which are sometimes not corrected at all, and are rarely corrected perfectly

Intuitive thinking then its a kind of thinking that goes on very quickly contrasted to the more serial, effortful processing of information that we sometimes engage in, most of the time we think intuitively. ( Kahneman 2002 Nobel lecture)

I think this is very insightful and how superficial generally our assessments can be. We all need to move to System 2 thinking for matters of importance - choosing a career, finding a partner, business decisions, policy decisions and all bigger decisions. Even system 1 needs a lens of System 2.

I love ideas and Daniel Kahneman and his collaborator Amos Tversky changed the world. When was a student remember reading Paul Samuelson's book on Economics many times.

I regret my education. My learning is effortful - System 2.

RIP Daniel Kahneman Sir!