Thinking, Fast and Slow
PART I: TWO SYSTEMS
1 The Characters of the Story
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System 1 operates automatically and quickly, with little or no effort and no sense of voluntary control.
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System 2 allocates attention to the effortful mental activities that demand it, including complex computations. The operations of System 2 are often associated with the subjective experience of agency, choice, and concentration.
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I describe System 1 as effortlessly originating impressions and feelings that are the main sources of the explicit beliefs and deliberate choices of System 2. The automatic operations of System 1 generate surprisingly complex patterns of ideas, but only the slower System 2 can construct thoughts in an orderly series of steps.
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In rough order of complexity, here are some examples of the automatic activities that are attributed to System 1: Detect that one 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 2 + 2 =? 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.
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The capabilities of System 1 include innate skills that we share with other animals.
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The highly diverse operations of System 2 have one feature in common: they require attention and are disrupted when attention is drawn away.
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Here are some examples:
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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 noisy room. 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 someone your phone number. Park in a narrow space (for most people except garage attendants).
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Compare two washing machines for overall value. Fill out a tax form. Check the validity of a complex logical argument.
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System 2 has some ability to change the way System 1 works, by programming the normally automatic functions of attention and memory.
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The often - used phrase “pay attention” is apt: you dispose of a limited budget of attention that you can allocate to activities, and if you try to go beyond your budget, you will fail. It is the mark of effortful activities that they interfere with each other, which is why it is difficult or impossible to conduct several at once.
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You can do several things at once, but only if they are easy and undemanding.
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Intense focusing on a task can make people effectively blind, even to stimuli that normally attract attention. The most dramatic demonstration was offered by Christopher Chabris and Daniel Simons in their book The Invisible Gorilla.
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Seeing and orienting are automatic functions of System 1, but they depend on the allocation of some attention to the relevant stimulus.
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The gorilla study illustrates two important facts about our minds: we can be blind to the obvious, and we are also blind to our blindness.
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The interaction of the two systems is a recurrent theme of the book, and a brief synopsis of the plot is in order. In the story I will tell, Systems 1 and 2 are both active whenever we are awake. System 1 runs automatically and System 2 is normally in a comfortable low - effort mode, in which only a fraction of its capacity is engaged. System 1 continuously generates suggestions for System 2: impressions, intuitions, intentions, and feelings. If endorsed by System 2, impressions and intuitions turn into beliefs, and impulses turn into voluntary actions. When all goes smoothly, which is most of the time, System 2 adopts the suggestions of System 1 with little or no modification. You generally believe your impressions and act on your desires, and that is fine — usually. When System 1 runs into difficulty, it calls on System 2 to support more detailed and specific processing that may solve the problem of the moment. System 2 is mobilized when a question arises for which System 1 does not offer an answer,
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System 2 is also credited with the continuous monitoring of your own behavior — the control that keeps you polite when you are angry, and alert when you are driving at night. System 2 is mobilized to increased effort when it detects an error about to be made.
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most of what you (your System 2) think and do originates in your System 1, but System 2 takes over when things get difficult, and it normally has the last word.
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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.
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the famous Müller - Lyer illusion.
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the horizontal lines are in fact identical in length.
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But you still see the bottom line as longer. You have chosen to believe the measurement, but you cannot prevent System 1 from doing its thing;
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you must learn to mistrust your impressions of the length of lines when fins are attached to them.
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Not all illusions are visual. There are illusions of thought, which we call cognitive illusions.
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Because System 1 operates automatically and cannot be turned off at will, errors of intuitive thought are often difficult to prevent.
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The best we can do is a compromise: learn to recognize situations in which mistakes are likely and try harder to avoid significant mistakes when the stakes are high.
2 Attention and Effort
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pupils are sensitive indicators of mental effort — they dilate substantially when people multiply two - digit numbers, and they dilate more if the problems are hard than if they are easy.
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people, when engaged in a mental sprint, may become effectively blind.
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the pupils offer an index of the current rate at which mental energy is used.
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System 2 protects the most important activity, so it receives the attention it needs; “spare capacity” is allocated second by second to other tasks.
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Even in modern humans, System 1 takes over in emergencies and assigns total priority to self - protective actions.
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As you become skilled in a task, its demand for energy diminishes. Studies of the brain have shown that the pattern of activity associated with an action changes as skill increases, with fewer brain regions involved.
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A general “law of least effort” applies to cognitive as well as physical exertion. The law asserts that if there are several ways of achieving the same goal, people will eventually gravitate to the least demanding course of action. In the economy of action, effort is a cost, and the acquisition of skill is driven by the balance of benefits and costs. Laziness is built deep into our nature.
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System 2 is the only one that can follow rules, compare objects on several attributes, and make deliberate choices between options.
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The automatic System 1 does not have these capabilities. System 1 detects simple relations (“they are all alike,” “the son is much taller than the father”) and excels at integrating information about one thing, but it does not deal with multiple distinct topics at once, nor is it adept at using purely statistical information.
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A crucial capability of System 2 is the adoption of “task sets”: it can program memory to obey an instruction that overrides habitual responses.
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switching from one task to another is effortful, especially under time pressure.
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We normally avoid mental overload by dividing our tasks into multiple easy steps, committing intermediate results to long - term memory
3 The Lazy Controller
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It is normally easy and actually quite pleasant to walk and think at the same time, but at the extremes these activities appear to compete for the limited resources of System 2.
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While walking comfortably with a friend, ask him to compute 23 × 78 in his head, and to do so immediately. He will almost certainly stop
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I can think while strolling but cannot engage in mental work that imposes a heavy load on short - term memory.
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The psychologist Mihaly Csikszentmihalyi (pronounced six - cent - mihaly) has done more than anyone else to study this state of effortless attending, and the name he proposed for it, flow, has become part of the language.
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“a state of effortless concentration so deep that they lose their sense of time, of themselves, of their problems,”
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In a state of flow, however, maintaining focused attention on these absorbing activities requires no exertion of self - control, thereby freeing resources to be directed to the task at hand.
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you would be more likely to select the tempting chocolate cake when your mind is loaded with digits. System 1 has more influence on behavior when System 2 is busy, and it has a sweet tooth.
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Mbd busy = better target
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People who are cognitively busy are also more likely to make selfish choices, use sexist language, and make superficial judgments in social situations.
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cognitive load is not the only cause of weakened self - control. A few drinks have the same effect, as does a sleepless night.
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Too much concern about how well one is doing in a task sometimes disrupts performance by loading short - term memory with pointless anxious thoughts
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an effort of will or self - control is tiring; if you have had to force yourself to do something, you are less willing or less able to exert self - control when the next challenge comes around. The phenomenon has been named ego depletion.
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ego - depleted people therefore succumb more quickly to the urge to quit.
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Later, these people will give up earlier than normal when faced with a difficult cognitive task.
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activities that impose high demands on System 2 require self - control, and the exertion of self - control is depleting and unpleasant. Unlike cognitive load, ego depletion is at least in part a loss of motivation.
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After exerting self - control in one task, you do not feel like making an effort in another, although you could do it if you really had to.
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people were able to resist the effects of ego depletion when given a strong incentive to do so.
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The nervous system consumes more glucose than most other parts of the body, and effortful mental activity appears to be especially expensive in the currency of glucose. When you are actively involved in difficult cognitive reasoning or engaged in a task that requires self - control, your blood glucose level drops.
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the effects of ego depletion could be undone by ingesting glucose,
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Restoring the level of available sugar in the brain had prevented the deterioration of performance
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Both fatigue and hunger probably play a role.
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when people believe a conclusion is true, they are also very likely to believe arguments that appear to support it, even when these arguments are unsound.
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one of the most famous experiments in the history of psychology, Walter Mischel and his students exposed four - year - old children to a cruel dilemma. They were given a choice between a small reward (one Oreo), which they could have at any time, or a larger reward (two cookies) for which they had to wait 15 minutes under difficult conditions.
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the children who had shown more self - control as four - year - olds had substantially higher scores on tests of intelligence
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System 1 is impulsive and intuitive; System 2 is capable of reasoning, and it is cautious, but at least for some people it is also lazy.
4 The Associative Machine
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a process called associative activation: ideas that have been evoked trigger many other ideas, in a spreading cascade of activity in your brain. The essential feature of this complex set of mental events is its coherence. Each element is connected, and each supports and strengthens the others. The word evokes memories, which evoke emotions, which in turn evoke facial expressions and other reactions, such as a general tensing up and an avoidance tendency.
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All this happens quickly and all at once, yielding a self - reinforcing pattern of cognitive, emotional, and physical responses that is both diverse and integrated — it has been called associatively coherent.
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An odd feature of what happened is that your System 1 treated the mere conjunction of two words as representations of reality.
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cognition is embodied; you think with your body, not only with your brain.
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Psychologists think of ideas as nodes in a vast network, called associative memory, in which each idea is linked to many others. There are different types of links: causes are linked to their effects (virus ➞ cold); things to their properties (lime ➞ green); things to the categories to which they belong (banana ➞ fruit).
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An idea that has been activated does not merely evoke one other idea. It activates many ideas, which in turn activate others. Furthermore, only a few of the activated ideas will register in consciousness; most of the work of associative thinking is silent, hidden from our conscious selves.
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you know far less about yourself than you feel you do.
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exposure to a word causes immediate and measurable changes in the ease with which many related words can be evoked. If you have recently seen or heard the word EAT, you are temporarily more likely to complete the word fragment SO_P as SOUP than as SOAP. The opposite would happen, of course, if you had just seen WASH. We call this a priming effect and say that the idea of EAT primes the idea of SOUP,
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priming is not restricted to concepts and words.
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The “Florida effect” involves two stages of priming. First, the set of words primes thoughts of old age, though the word old is never mentioned; second, these thoughts prime a behavior, walking slowly, which is associated with old age. All this happens without any awareness.
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priming phenomenon — the influencing of an action by the idea — is known as the ideomotor effect.
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if you were primed to think of old age, you would tend to act old, and acting old would reinforce the thought of old age.
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Reciprocal links are common in the associative network. For example, being amused tends to make you smile, and smiling tends to make you feel amused.
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Money - primed people become more independent than they would be without the associative trigger. They persevered almost twice as long in trying to solve a very difficult problem before they asked the experimenter for help, a crisp demonstration of increased self - reliance. Money - primed people are also more selfish: they were much less willing to spend time helping another student who pretended to be confused about an experimental task.
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the idea of money primes individualism: a reluctance to be involved with others, to depend on others, or to accept demands from others.
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a perfect demonstration of a priming effect, which was conducted in an office kitchen at a British university
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For a period of ten weeks a new image was presented each week, either flowers or eyes that appeared to be looking directly at the observer.
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On the first week of the experiment (which you can see at the bottom of the figure), two wide - open eyes stare at the coffee or tea drinkers, whose average contribution was 70 pence per liter of milk.
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On week 2, the poster shows flowers and average contributions drop to about 15 pence.
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the users of the kitchen contributed almost three times as much in “eye weeks” as they did in “flower weeks.”
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a purely symbolic reminder of being watched prodded people into improved behavior.
5 Cognitive Ease
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One of the dials measures cognitive ease, and its range is between “Easy” and “Strained.” Easy is a sign that things are going well — no threats, no major news, no need to redirect attention or mobilize effort. Strained indicates that a problem exists, which will require increased mobilization of System 2. Conversely, you experience cognitive strain. Cognitive strain is affected by both the current level of effort and the presence of unmet demands.
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a sentence that is printed in a clear font, or has been repeated, or has been primed, will be fluently processed with cognitive ease.
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Hearing a speaker when you are in a good mood, or even when you have a pencil stuck crosswise in your mouth to make you “smile,” also induces cognitive ease.
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When you are in a state of cognitive ease, you are probably in a good mood, like what you see, believe what you hear, trust your intuitions, and feel that the current situation is comfortably familiar. You are also likely to be relatively casual and superficial in your thinking. When you feel strained, you are more likely to be vigilant and suspicious, invest more effort in what you are doing, feel less comfortable, and make fewer errors, but you also are less intuitive and less creative than usual.
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Words that you have seen before become easier to see again — you can identify them better than other words when they are shown very briefly or masked by noise, and you will be quicker (by a few hundredths of a second) to read them than to read other words. In short, you experience greater cognitive ease in perceiving a word you have seen earlier, and it is this sense of ease that gives you the impression of familiarity.
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a new word is more likely to be recognized as familiar if it is unconsciously primed by showing it for a few milliseconds just before the test, or if it is shown in sharper contrast than some other words in the list.
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you may not know precisely what it is that makes things cognitively easy or strained. This is how the illusion of familiarity comes about.
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If it looked new (or improbably extreme), I rejected it. The impression of familiarity is produced by System 1, and System 2 relies on that impression for a true / false judgment.
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A reliable way to make people believe in falsehoods is frequent repetition, because familiarity is not easily distinguished from truth.
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The familiarity of one phrase in the statement sufficed to make the whole statement feel familiar, and therefore true. If you cannot remember the source of a statement, and have no way to relate it to other things you know, you have no option
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HOW TO WRITE A PERSUASIVE MESSAGE
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The general principle is that anything you can do to reduce cognitive strain will help, so you should first maximize legibility.
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use high - quality paper
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If you use color, you are more likely to be believed if your text is printed in bright blue or red than in middling shades of green, yellow, or pale blue.
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do not use complex language where simpler language will do.
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couching familiar ideas in pretentious language is taken as a sign of poor intelligence and low credibility.
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try to make it memorable. Put your ideas in verse if you can;
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The aphorisms were judged more insightful when they rhymed than when they did not.
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if you quote a source, choose one with a name that is easy to pronounce.
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Shane Frederick’s Cognitive Reflection Test consists of the bat - and - ball problem and two others, all chosen because they evoke an immediate intuitive answer that is incorrect
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The experimenters recruited 40 Princeton students to take the CRT.
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performance was better with the bad font. Cognitive strain, whatever its source, mobilizes System 2, which is more likely to reject the intuitive answer suggested by System 1.
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Companies with pronounceable names do better than others for the first week after the stock is issued, though the effect disappears over time.
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repetition induces cognitive ease and a comforting feeling of familiarity. The famed psychologist Robert Zajonc dedicated much of his career to the study of the link between the repetition of an arbitrary stimulus and the mild affection that people eventually have for it. Zajonc called it the mere exposure effect.
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the words that were presented more frequently were rated much more favorably than the words that had been shown only once or twice.
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The mere exposure effect does not depend on the conscious experience of familiarity.
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They still end up liking the words or pictures that were presented more frequently.
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Indeed, the mere exposure effect is actually stronger for stimuli that the individual never consciously sees.
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Mednick thought he had identified the essence of creativity. His idea was as simple as it was powerful: creativity is associative memory that works exceptionally well.
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Another remarkable discovery is the powerful effect of mood on this intuitive performance.
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putting the participants in a good mood before the test by having them think happy thoughts more than doubled accuracy. An even more striking result is that unhappy subjects were completely incapable of performing the intuitive task accurately;
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when we are uncomfortable and unhappy, we lose touch with our intuition.
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good mood, intuition, creativity, gullibility, and increased reliance on System 1 form a cluster
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sadness, vigilance, suspicion, an analytic approach, and increased effort also go together.
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A happy mood loosens the control of System 2 over performance: when in a good mood, people become more intuitive and more creative but also less vigilant and more prone to logical errors.
6 Norms, Surprise, and Causes
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The main function of System 1 is to maintain and update a model of your personal world, which represents what is normal in it.
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The model is constructed by associations that link ideas of circumstances, events, actions, and outcomes that co - occur with some regularity, either at the same time or within a relatively short interval.
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A capacity for surprise is an essential aspect of our mental life, and surprise itself is the most sensitive indication of how we understand our world and what we expect from it.
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There are two main varieties of surprise.
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Some expectations are active and conscious — you know you are waiting for a particular event to happen.
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But there is a much larger category of events that you expect passively; you don’t wait for them, but you are not surprised when they happen.
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“How many animals of each kind did Moses take into the ark?”
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the “Moses illusion.”
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Moses took no animals into the ark; Noah did.
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the Moses illusion is readily explained by norm theory. The idea of animals going into the ark sets up a biblical context, and Moses is not abnormal in that context.
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You did not positively expect him, but the mention of his name is not surprising.
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It also helps that Moses and Noah have the same vowel sound and number of syllables.
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A coherent story was instantly constructed as you read;
7 A Machine for Jumping to Conclusions
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Jumping to conclusions is efficient if the conclusions are likely to be correct and the costs of an occasional mistake acceptable, and if the jump saves much time and effort.
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Jumping to conclusions is risky when the situation is unfamiliar, the stakes are high, and there is no time to collect more information.
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same shape is read as a letter in a context of letters and as a number in a context of numbers. The entire context helps determine the interpretation of each element.
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In the absence of an explicit context, System 1 generated a likely context on its own.
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The rules of the betting are intelligent: recent events and the current context have the most weight in determining an interpretation. When no recent event comes to mind, more distant memories govern.
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System 1 does not keep track of alternatives that it rejects, or even of the fact that there were alternatives. Conscious doubt is not in the repertoire of System 1; it requires maintaining incompatible interpretations in mind at the same time, which demands mental effort. Uncertainty and doubt are the domain of System 2.
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Gilbert proposed that understanding a statement must begin with an attempt to believe it: you must first know what the idea would mean if it were true.
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Only then can you decide whether or not to unbelieve it.
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Gilbert sees unbelieving as an operation of System 2,
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when System 2 is otherwise engaged, we will believe almost anything. System 1 is gullible and biased to believe, System 2 is in charge of doubting and unbelieving, but System 2 is sometimes busy, and often lazy. Indeed, there is evidence that people are more likely to be influenced by empty persuasive messages, such as commercials, when they are tired and depleted.
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The operations of associative memory contribute to a general confirmation bias.
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positive test strategy,
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people (and scientists, quite often) seek data that are likely to be compatible with the beliefs they currently hold.
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The tendency to like (or dislike) everything about a person — including things you have not observed — is known as the halo effect.
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What do you think of Alan and Ben?
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Alan: intelligent — industrious — impulsive — critical — stubborn — envious
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Ben: envious — stubborn — critical — impulsive — industrious — intelligent
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If you are like most of us, you viewed Alan much more favorably than Ben.
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The initial traits in the list change the very meaning of the traits that appear later.
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The sequence in which we observe characteristics of a person is often determined by chance. Sequence matters, however, because the halo effect increases the weight of first impressions, sometimes to the point that subsequent information is mostly wasted.
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to tame the halo effect conforms to a general principle: decorrelate error !
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imagine that a large number of observers are shown glass jars containing pennies and are challenged to estimate the number of pennies in each jar.
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this is the kind of task in which individuals do very poorly, but pools of individual judgments do remarkably well.
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when many judgments are averaged, the average tends to be quite accurate.
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However, the magic of error reduction works well only when the observations are independent and their errors uncorrelated.
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If the observers share a bias, the aggregation of judgments will not reduce it.
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Witnesses who exchange their experiences will tend to make similar errors in their testimony, reducing the total value of the information they provide.
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Mdb i social edia con i suoi like e follow amplificano l halo effect
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A simple rule can help: before an issue is discussed, all members of the committee should be asked to write a very brief summary of their position.
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System 1 excels at constructing the best possible story that incorporates ideas currently activated, but it does not (cannot) allow for information it does not have.
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The measure of success for System 1 is the coherence of the story it manages to create.
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When information is scarce, which is a common occurrence, System 1 operates as a machine for jumping to conclusions.
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The combination of a coherence - seeking System 1 with a lazy System 2 implies that System 2 will endorse many intuitive beliefs, which closely reflect the impressions generated by System 1.
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Jumping to conclusions on the basis of limited evidence is so important to an understanding of intuitive thinking, and comes up so often in this book, that I will use a cumbersome abbreviation for it: WYSIATI, which stands for what you see is all there is.
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Indeed, you will often find that knowing little makes it easier to fit everything you know into a coherent pattern.
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WY SIATI facilitates the achievement of coherence and of the cognitive ease that causes us to accept a statement as true.
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Much of the time, the coherent story we put together is close enough to reality to support reasonable action.
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WY SIATI to help explain a long and diverse list of biases of judgment and choice, including
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Framing effects: Different ways of presenting the same information often evoke different emotions. The statement that “the odds of survival one month after surgery are 90%” is more reassuring than the equivalent statement that “mortality within one month of surgery is 10%.”
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Base - rate neglect:
8 How Judgments Happen
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System 2 receives questions or generates them: in either case it directs attention and searches memory to find the answers.
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System 1 operates differently. It continuously monitors what is going on outside and inside the mind, and continuously generates assessments of various aspects of the situation without specific intention and with little or no effort.
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These basic assessments play an important role in intuitive judgment, because they are easily substituted for more difficult questions
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System 1 has been shaped by evolution to provide a continuous assessment of the main problems that an organism must solve to survive: How are things going? Is there a threat or a major opportunity? Is everything normal?
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Situations are constantly evaluated as good or bad, requiring escape or permitting approach.
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we are endowed with an ability to evaluate, in a single glance at a stranger’s face, two potentially crucial facts about that person: how dominant (and therefore potentially threatening) he is, and how trustworthy he is, whether his intentions are more likely to be friendly or hostile
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The shape of the face provides the cues for assessing dominance: a “strong” square chin is one such cue. Facial expression (smile or frown) provides the cues for assessing the stranger’s intentions.
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it has some influence on how people vote.
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a new aptitude of System 1. An underlying scale of intensity allows matching across diverse dimensions.
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System 1 carries out many computations at any one time. Some of these are routine assessments that go on continuously.
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contrast to these routine assessments, other computations are undertaken only when needed: you do not maintain a continuous evaluation of how happy or wealthy you are,
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The occasional judgments are voluntary. They occur only when you intend them to do so.
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we often compute much more than we want or need. I call this excess computation the mental shotgun.
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the combination of a mental shotgun with intensity matching explains why we have intuitive judgments about many things that we know little about.
9 Answering an Easier Question
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Whether you state them or not, you often have answers to questions that you do not completely understand, relying on evidence that you can neither explain nor defend.
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a satisfactory answer to a hard question is not found quickly, System 1 will find a related question that is easier and will answer it.
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I call the operation of answering one question in place of another substitution.
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The target question is the assessment you intend to produce. The heuristic question is the simpler question that you answer instead.
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George Pólya included substitution in his classic How to Solve It: “If you can’t solve a problem, then there is an easier problem you can solve: find it.”
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the heuristics that I discuss in this chapter are not chosen; they are a consequence of the mental shotgun, the imprecise control we have over targeting our responses to questions.
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The mental shotgun makes it easy to generate quick answers to difficult questions without imposing much hard work on your lazy System 2.
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The heuristic questions provide an off - the - shelf answer to each of the difficult target questions.
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Something is still missing from this story: the answers need to be fitted to the original questions.
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Another capability of System 1, intensity matching, is available to solve that problem.
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Any emotionally significant question that alters a person’s mood will have the same effect. WYSIATI. The present state of mind looms very large when people evaluate their happiness.
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Characteristics of System 1
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generates impressions, feelings, and inclinations;
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operates automatically and quickly, with little or no effort, and no sense of voluntary control
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can be programmed by System 2 to mobilize attention when a particular pattern is detected (search)
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links a sense of cognitive ease to illusions of truth, pleasant feelings, and reduced vigilance
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distinguishes the surprising from the normal
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neglects ambiguity and suppresses doubt
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is biased to believe and confirm
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exaggerates emotional consistency (halo effect)
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focuses on existing evidence and ignores absent evidence (WYSIATI)
Page 105 · 1875
generates a limited set of basic assessments
Page 105 · 1875
represents sets by norms and prototypes, does not integrate
Page 105 · 1876
computes more than intended (mental shotgun)
Page 105 · 1876
sometimes substitutes an easier question for a difficult one (heuristics)
Page 105 · 1877
is more sensitive to changes than to states (prospect theory)
Page 105 · 1879
shows diminishing sensitivity to quantity (psychophysics)
Page 105 · 1879
responds more strongly to losses than to gains (loss aversion)
Page 105 · 1880
frames decision problems narrowly, in isolation from one another
PART II: HEURISTICS AND BIASES
10 The Law of Small Numbers
Page 110 · 1903
System 1 is highly adept in one form of thinking — it automatically and effortlessly identifies causal connections between events, sometimes even when the connection is spurious.
Page 110 · 1906
however, System 1 is inept when faced with “merely statistical” facts, which change the probability of outcomes but do not cause them to happen.
Page 114 · 1982
you focus on the story rather than on the reliability of the results. When the reliability is obviously low, however, the message will be discredited.
Page 114 · 1987
As I described earlier, System 1 is not prone to doubt. It suppresses ambiguity and spontaneously constructs stories that are as coherent as possible.
Page 114 · 1989
System 2 is capable of doubt, because it can maintain incompatible possibilities at the same time.
Page 114 · 1990
However, sustaining doubt is harder work than sliding into certainty.
Page 114 · 1990
general bias that favors certainty over doubt,
Page 114 · 1992
we are prone to exaggerate the consistency and coherence of what we see.
Page 115 · 2000
Our predilection for causal thinking exposes us to serious mistakes in evaluating the randomness of truly random events.
Page 115 · 2009
We are pattern seekers, believers in a coherent world, in which regularities (such as a sequence of six girls) appear not by accident but as a result of mechanical causality or of someone’s intention.
Page 116 · 2036
there is no such thing as a hot hand in professional basketball, either in shooting from the field or scoring from the foul line.
Page 116 · 2038
the sequence of successes and missed shots satisfies all tests of randomness.
Page 117 · 2039
The hot hand is a massive and widespread cognitive illusion.
Page 117 · 2043
The illusion of pattern affects our lives in many ways
Page 117 · 2046
if you follow your intuition, you will more often than not err by misclassifying a random event as systematic.
Page 117 · 2046
We are far too willing to reject the belief that much of what we see in life is random.
Page 118 · 2067
Many facts of the world are due to chance, including accidents of sampling. Causal explanations of chance events are inevitably wrong.
Page 119 · 2086
anchoring effect. It occurs when people consider a particular value for an unknown quantity before estimating that quantity.
Page 119 · 2087
the estimates stay close to the number that people considered — hence the image of an anchor.
Page 119 · 2088
If you are asked whether Gandhi was more than 114 years old when he died you will end up with a much higher estimate of his age at death than you would if the anchoring question referred to death at 35.
Page 120 · 2090
If you consider how much you should pay for a house, you will be influenced by the asking price. The same house will appear more valuable if its listing price is high than if it is low,
Page 120 · 2098
There is a form of anchoring that occurs in a deliberate process of adjustment, an operation of System 2.
Page 120 · 2099
And there is anchoring that occurs by a priming effect, an automatic manifestation of System 1.
Page 120 · 2101
an adjust - and - anchor heuristic as a strategy for estimating uncertain quantities: start from an anchoring number, assess whether it is too high or too low, and gradually adjust your estimate by mentally “moving” from the anchor. The adjustment typically ends prematurely,
Page 121 · 2123
adjustment is a deliberate attempt to find reasons to move away from the anchor:
Page 121 · 2126
People adjust less (stay closer to the anchor) when their mental resources are depleted, either because their memory is loaded with digits or because they are slightly drunk.
Page 122 · 2128
Insufficient adjustment is a failure of a weak or lazy System 2.
Page 122 · 2136
anchoring is a case of suggestion. This is the word we use when someone causes us to see, hear, or feel something by merely bringing it to mind. For example, 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 indeed feel a little strange.
Page 122 · 2142
suggestion is a priming effect, which selectively evokes compatible evidence.
Page 122 · 2143
You did not believe for a moment that Gandhi lived for 144 years, but your associative machinery surely generated an impression of a very ancient person.
Page 122 · 2144
System 1 understands sentences by trying to make them true, and the selective activation of compatible thoughts produces a family of systematic errors that make us gullible and prone to believe too strongly whatever we believe.
Page 123 · 2148
System 1 tries its best to construct a world in which the anchor is the true number.
Page 126 · 2213
Anchoring effects explain why, for example, arbitrary rationing is an effective marketing ploy.
Page 126 · 2213
supermarket shoppers in Sioux City, Iowa, encountered a sales promotion for Campbell’s soup at about 10% off the regular price. On some days, a sign on the shelf said LIMIT OF 12 PER PERSON. On other days, the sign said NO LIMIT PER PERSON. Shoppers purchased an average of 7 cans when the limit was in force, twice as many as they bought when the limit was removed.
Page 126 · 2217
Rationing also implies that the goods are flying off the shelves, and shoppers should feel some urgency about stocking up.
Page 127 · 2228
the anchoring effect is reduced or eliminated when the second mover focuses his attention on the minimal offer that the opponent would accept, or on the costs to the opponent of failing to reach an agreement. In general, a strategy of deliberately “thinking the opposite” may be a good defense against anchoring effects, because it negates the biased recruitment of thoughts that produces these effects.
12 The Science of Availability
Page 129 · 2275
what people actually do when they wish to estimate the frequency of a category,
Page 129 · 2276
The answer was straightforward: instances of the class will be retrieved from memory, and if retrieval is easy and fluent, the category will be judged to be large. We defined the availability heuristic as the process of judging frequency by “the ease with which instances come to mind.”
Page 130 · 2288
The availability heuristic, like other heuristics of judgment, substitutes one question for another: you wish to estimate the size of a category or the frequency of an event, but you report an impression of the ease with which instances come to mind.
Page 130 · 2290
Substitution of questions inevitably produces systematic errors.
Page 130 · 2292
Page 130 · 2292
A salient event that attracts your attention will be easily retrieved from memory. Divorces among Hollywood celebrities and sex scandals among politicians attract much attention,
Page 130 · 2294
A dramatic event temporarily increases the availability of its category.
Page 130 · 2295
A plane crash that attracts media coverage will temporarily alter your feelings about the safety of flying.
Page 130 · 2296
Personal experiences, pictures, and vivid examples are more available than incidents that happened to others, or mere words, or statistics.
Page 130 · 2299
Resisting this large collection of potential availability biases is possible, but tiresome.
Page 131 · 2299
You must make the effort to reconsider your impressions and intuitions
Page 134 · 2362
the process that leads to judgment by availability appears to involve a complex chain of reasoning.
Page 134 · 2367
The answer is that in fact no complex reasoning is needed. Among the basic features of System 1 is its ability to set expectations and to be surprised when these expectations are violated
Page 136 · 2398
“Because of the coincidence of two planes crashing last month, she now prefers to take the train. That’s silly. The risk hasn’t really changed; it is an availability bias.”
13 Availability, Emotion, and Risk
Page 137 · 2409
After each significant earthquake, Californians are for a while diligent in purchasing insurance and adopting measures of protection and mitigation.
Page 137 · 2411
However, the memories of the disaster dim over time, and so do worry and diligence.
Page 138 · 2427
estimates of causes of death are warped by media coverage.
Page 138 · 2427
The coverage is itself biased toward novelty and poignancy.
Page 138 · 2427
The media do not just shape what the public is interested in, but also are shaped by it.
Page 138 · 2430
The world in our heads is not a precise replica of reality; our expectations about the frequency of events are distorted by the prevalence and emotional intensity of the messages to which we are exposed.
Page 138 · 2433
the ease with which ideas of various risks come to mind and the emotional reactions to these risks are inextricably linked.
Page 139 · 2435
the notion of an affect heuristic, in which people make judgments and decisions by consulting their emotions:
Page 139 · 2438
The affect heuristic is an instance of substitution, in which the answer to an easy question (How do I feel about it?) serves as an answer to a much harder question (What do I think about it?).
Page 139 · 2440
people’s emotional evaluations of outcomes, and the bodily states and the approach and avoidance tendencies associated with them, all play a central role in guiding decision making.
Page 139 · 2441
people who do not display the appropriate emotions before they decide, sometimes because of brain damage, also have an impaired ability to make good decisions. An inability to be guided by a “healthy fear” of bad consequences is a disastrous flaw.
Page 140 · 2459
as the psychologist Jonathan Haidt said in another context, “The emotional tail wags the rational dog.”
Page 140 · 2460
The affect heuristic simplifies our lives by creating a world that is much tidier than reality.
Page 140 · 2463
Page 140 · 2463
His work offers a picture of Mr. and Ms. Citizen that is far from flattering: guided by emotion rather than by reason, easily swayed by trivial details, and inadequately sensitive to differences between low and negligibly low probabilities.
Page 140 · 2466
Experts show many of the same biases as the rest of us in attenuated form, but often their judgments and preferences about risks diverge from those of other people.
Page 140 · 2468
He points out that experts often measure risks by the number of lives (or life - years) lost, while the public draws finer distinctions, for example between “good deaths” and “bad deaths,”
Page 140 · 2472
Consequently, he strongly resists the view that the experts should rule, and that their opinions should be accepted without question
Page 141 · 2475
Slovic has challenged the foundation of their expertise: the idea that risk is objective.
Page 141 · 2477
“Risk” does not exist “out there,” independent of our minds and culture, waiting to be measured.
Page 141 · 2482
He goes on to conclude that “defining risk is thus an exercise in power.”
Page 141 · 2486
Cass Sunstein, disagrees sharply with Slovic’s stance on the different views of experts and citizens, and defends the role of experts as a bulwark against “populist” excesses.
Page 142 · 2499
Kuran, invented a name for the mechanism through which biases flow into policy: the availability cascade
Page 142 · 2502
the importance of an idea is often judged by the fluency (and emotional charge) with which that idea comes to mind.
Page 142 · 2503
An availability cascade is a self - sustaining chain of events, which may start from media reports of a relatively minor event and lead up to public panic and large - scale government action. On some occasions, a media story about a risk catches the attention of a segment of the public, which becomes aroused and worried. This emotional reaction becomes a story in itself, prompting additional coverage in the media, which in turn produces greater concern and involvement. The cycle is sometimes sped along deliberately by “availability entrepreneurs,” individuals or organizations who work to ensure a continuous flow of worrying news. The danger is increasingly exaggerated as the media compete for attention - grabbing headlines. Scientists and others who try to dampen the increasing fear and revulsion attract little attention, most of it hostile: anyone who claims that the danger is overstated is suspected of association with a “heinous cover - up.” The issue becomes politically important because it is on everyone’s mind, and the response of the political system is guided by the intensity of public sentiment. The availability cascade has now reset priorities.
Page 143 · 2532
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
Page 144 · 2536
the amount of concern is not adequately sensitive to the probability of harm; you are imagining the numerator — the tragic story you saw on the news — and not thinking about the denominator. Sunstein has coined the phrase “probability neglect” to describe the pattern. The combination of probability neglect with the social mechanisms of availability cascades inevitably leads to gross exaggeration of minor threats, sometimes with important consequences.
Page 144 · 2539
terrorists are the most significant practitioners of the art of inducing availability cascades.
Page 144 · 2544
Terrorism speaks directly to System 1.
14 Tom W’s Specialty
Page 149 · 2630
judge representativeness. The question about probability (likelihood) was difficult, but the question about similarity was easier, and it was answered instead. This is a serious mistake, because judgments of similarity and probability are not constrained by the same logical rules. It is entirely acceptable for judgments of similarity to be unaffected by base rates and also by the possibility that the description was inaccurate, but anyone who ignores base rates and the quality of evidence in probability assessments will certainly make mistakes.
Page 151 · 2657
Judging probability by representativeness has important virtues: the intuitive impressions that it produces are often — indeed, usually — more accurate than chance guesses would be.
Page 151 · 2663
In other situations, the stereotypes are false and the representativeness heuristic will mislead, especially if it causes people to neglect base - rate information that points in
Page 151 · 2665
One sin of representativeness is an excessive willingness to predict the occurrence of unlikely (low base - rate) events.
Page 152 · 2690
When an incorrect intuitive judgment is made, System 1 and System 2 should both be indicted.
Page 152 · 2690
System 1 suggested the incorrect intuition, and System 2 endorsed it and expressed it in a judgment.
Page 153 · 2691
there are two possible reasons for the failure of System 2 — ignorance or laziness.
Page 153 · 2692
Some people ignore base rates because they believe them to be irrelevant in the presence of individual information. Others make the same mistake because they are not focused on the task.
Page 153 · 2695
The second sin of representativeness is insensitivity to the quality of evidence. Recall the rule of System 1: WYSIATI.
Page 153 · 2700
WY SIATI makes it very difficult to apply that principle. Unless you decide immediately to reject evidence (for example, by determining that you received it from a liar), your System 1 will automatically process the information available as if it were true.
Page 153 · 2702
There is one thing you can do when you have doubts about the quality of the evidence: let your judgments of probability stay close to the base rate.
Page 154 · 2723
The combination of WY SIATI and associative coherence tends to make us believe in the stories we spin for ourselves.
Page 154 · 2724
The essential keys to disciplined Bayesian reasoning can be simply summarized: Anchor your judgment of the probability of an outcome on a plausible base rate. Question the diagnosticity of your evidence.
15 Linda: Less is More
Page 158 · 2792
conjunction fallacy, which people commit when they judge a conjunction of two events (here, bank teller and feminist) to be more probable than one of the events (bank teller) in a direct comparison.
Page 160 · 2815
probability judgments were higher for the richer and more detailed scenario, contrary to logic. This is a trap for forecasters and their clients: adding detail to scenarios makes them more persuasive, but less likely to come true.
Page 160 · 2822
Jane is a teacher. Jane is a teacher and walks to work. The two questions have the same logical structure as the Linda problem, but they cause no fallacy, because the more detailed outcome is only more detailed — it is not more plausible, or more coherent, or a better story.
16 Causes Trump Statistics
Page 168 · 2974
Statistical base rates are facts about a population to which a case belongs, but they are not relevant to the individual case. Causal base rates change your view of how the individual case came to be. The two types of base - rate information are treated differently: Statistical base rates are generally underweighted, and sometimes neglected altogether, when specific information about the case at hand is available. Causal base rates are treated as information about the individual case and are easily combined with other case - specific information.
Page 168 · 2987
One of the basic characteristics of System 1 is that it represents categories as norms and prototypical exemplars. This is how we think of horses, refrigerators, and New York police officers; we hold in memory a representation of one or more “normal” members of each of these categories. When the categories are social, these representations are called stereotypes.
Page 169 · 2991
stereotypes, both correct and false, are how we think of categories.
Page 170 · 3027
the renowned “helping experiment” that had been conducted a few years earlier at New York University.
Page 171 · 3037
only four of the fifteen participants responded immediately to the appeal for help.
Page 171 · 3039
The experiment shows that individuals feel relieved of responsibility when they know that others have heard the same request for help.
Page 171 · 3042
Even normal, decent people do not rush to help when they expect others to take on the unpleasantness of dealing with a seizure. And that means you, too.
Page 174 · 3096
surprising individual cases have a powerful impact and are a more effective tool for teaching psychology because the incongruity must be resolved and embedded in a causal story.
Page 174 · 3098
You are more likely to learn something by finding surprises in your own behavior than by hearing surprising facts about people in general.
17 Regression to the Mean
Page 175 · 3107
rewards for improved performance work better than punishment of mistakes.
Page 175 · 3117
What he had observed is known as regression to the mean, which in that case was due to random fluctuations in the quality of performance. Naturally, he praised only a cadet whose performance was far better than average. But the cadet was probably just lucky on that particular attempt and therefore likely to deteriorate regardless of whether or not he was praised. Similarly, the instructor would shout into a cadet’s earphones only when the cadet’s performance was unusually bad and therefore likely to improve regardless of what the instructor did.
Page 176 · 3127
poor performance was typically followed by improvement and good performance by deterioration, without any help from either praise or punishment.
Page 176 · 3132
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.
Page 176 · 3135
success = talent + luck great success = a little more talent + a lot of luck
Page 178 · 3156
The golfer who did well on day 1 is likely to be successful on day 2 as well, but less than on the first, because the unusual luck he probably enjoyed on day 1 is unlikely to hold.
Page 178 · 3157
The golfer who did poorly on day 1 will probably be below average on day 2, but will improve, because his probable streak of bad luck is not likely to continue.
Page 178 · 3160
the best predicted performance on day 2 is more moderate, closer to the average than the evidence on which it is based (the score on day 1). This is why the pattern is called regression to the mean.
Page 178 · 3161
The more extreme the original score, the more regression we expect, because an extremely good score suggests a very lucky day.
Page 178 · 3168
well - known example is the “Sports Illustrated jinx,” the claim that an athlete whose picture appears on the cover of the magazine is doomed to perform poorly the following season. Overconfidence and the pressure 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 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.
Page 181 · 3227
whenever the correlation between two scores is imperfect, there will be regression to the mean.
Page 182 · 3243
our mind is strongly biased toward causal explanations and does not deal well with “mere statistics.” When our attention is called to an event, associative memory will look for its cause — more precisely, activation will automatically spread to any cause that is already stored in memory.
Page 183 · 3265
long list of eminent researchers who have made the same mistake — confusing mere correlation with causation. Regression effects are a common source of trouble in research,
18 Taming Intuitive Predictions
Page 185 · 3297
Some predictive judgments, such as those made by engineers, rely largely on look - up tables, precise calculations,
Page 185 · 3298
Others involve intuition and System 1, in two main varieties.
Page 185 · 3299
Some intuitions draw primarily on skill and expertise acquired by repeated experience.
Page 185 · 3302
Other intuitions, which are sometimes subjectively indistinguishable from the first, arise from the operation of heuristics that often substitute an easy question for the harder one that was asked.
Page 186 · 3314
intuitive predictions are almost completely insensitive to the actual predictive quality of the evidence. When a link is found, as in the case of Julie’s early reading, WY SIATI applies: your associative memory quickly and automatically constructs the best possible story from the information available.
Page 191 · 3402
The corrected intuitive predictions eliminate these biases, so that predictions (both high and low) are about equally likely to overestimate and to underestimate the true value. You still make errors when your predictions are unbiased, but the errors are smaller and do not favor either high or low outcomes.
Page 192 · 3429
preference for unbiased predictions is justified if all errors of prediction are treated alike, regardless of their direction. But there are situations in which one type of error is much worse than another. When a venture capitalist looks for “the next big thing,” the risk of missing the next Google or Facebook is far more important than the risk of making a modest investment in a start - up that ultimately fails. The goal of venture capitalists is to call the extreme cases correctly, even at the cost of overestimating the prospects of many other ventures.
Page 193 · 3443
If you choose to delude yourself by accepting extreme predictions, however, you will do well to remain aware of your self - indulgence. Perhaps the most valuable contribution of the corrective procedures I propose is that they will require you to think about how much you know.
Page 194 · 3457
Following our intuitions is more natural, and somehow more pleasant, than acting against them.
Page 194 · 3463
Extreme predictions and a willingness to predict rare events from weak evidence are both manifestations of System 1.
Page 194 · 3465
it is natural for System 1 to generate overconfident judgments, because confidence, as we have seen, is determined by the coherence of the best story you can tell from the evidence at hand. Be warned: your intuitions will deliver predictions that are too extreme and you will be inclined to put far too much faith in them.
PART III: OVERCONFIDENCE
19 The Illusion of Understanding
Page 199 · 3485
In The Black Swan, Taleb introduced the notion of a narrative fallacy to describe how flawed stories of the past shape our views of the world and our expectations for the future. Narrative fallacies arise inevitably from our continuous attempt to make sense of the world. The explanatory stories that people find compelling are simple; are concrete rather than abstract; assign a larger role to talent, stupidity, and intentions than to luck; and focus on a few striking events that happened rather than on the countless events that failed to happen. Any recent salient event is a candidate to become the kernel of a causal narrative. Taleb suggests that we humans constantly fool ourselves by constructing flimsy accounts of the past and believing they are true.
Page 199 · 3493
contributes to coherence, because it inclines us to match our view of all the qualities of a person to our judgment of one attribute that is particularly significant.
Page 199 · 3496
The halo effect helps keep explanatory narratives simple and coherent by exaggerating the consistency of evaluations: good people do only good things and bad people are all bad.
Page 202 · 3543
The mind that makes up narratives about the past is a sense - making organ. When an unpredicted event occurs, we immediately adjust our view of the world to accommodate the surprise.
Page 202 · 3547
A general limitation of the human mind is its imperfect ability to reconstruct past states of knowledge, or beliefs that have changed. Once you adopt a new view of the world (or of any part of it), you immediately lose much of your ability to recall what you used to believe before your mind changed.
Page 202 · 3555
Your inability to reconstruct past beliefs will inevitably cause you to underestimate the extent to which you were surprised by past events. Baruch Fischhoff first demonstrated this “I - knew - it - all - along” effect, or hindsight bias,
Page 203 · 3562
If an event had actually occurred, people exaggerated the probability that they had assigned to it earlier. If the possible event had not come to pass, the participants erroneously recalled that they had always considered it unlikely.
Page 203 · 3567
Hindsight bias has pernicious effects on the evaluations of decision makers. It leads observers to assess the quality of a decision not by whether the process was sound but by whether its outcome was good or bad.
Page 203 · 3572
Hindsight is especially unkind to decision makers who act as agents for others — physicians, financial advisers, third - base coaches, CEOs, social workers, diplomats, politicians. We are prone to blame decision makers for good decisions that worked out badly and to give them too little credit for successful moves that appear obvious only after the fact. There is a clear outcome bias.
Page 204 · 3582
The worse the consequence, the greater the hindsight bias.
Page 204 · 3595
Leaders who have been lucky are never punished for having taken too much risk. Instead, they are believed to have had the flair and foresight to anticipate success, and the sensible people who doubted them are seen in hindsight as mediocre, timid, and weak. A few lucky gambles can crown a reckless leader with a halo of prescience and boldness.
Page 204 · 3598
The illusion that one has understood the past feeds the further illusion that one can predict and control the future. These illusions are comforting. They reduce the anxiety that we would experience if we allowed ourselves to fully acknowledge the uncertainties of existence.
Page 206 · 3625
The Halo Effect,
Page 206 · 3626
histories of the rise (usually) and fall (occasionally) of particular individuals and companies, and analyses of differences between successful and less successful firms. He concludes that stories of success and failure consistently exaggerate the impact of leadership style and management practices on firm outcomes, and thus their message is rarely useful.
Page 207 · 3653
A study of Fortune’s “Most Admired Companies” finds that over a twenty - year period, the firms with the worst ratings went on to earn much higher stock returns than the most admired firms.
20 The Illusion of Validity
Page 209 · 3670
System 1 is designed to jump to conclusions from little evidence — and it is not designed to know the size of its jumps. Because of WYSIATI, only the evidence at hand counts. Because of confidence by coherence, the subjective confidence we have in our opinions reflects the coherence of the story that System 1 and System 2 have constructed. The amount of evidence and its quality do not count for much, because poor evidence can make a very good story.
Page 211 · 3718
the illusion of validity.
Page 212 · 3729
Subjective confidence in a judgment is not a reasoned evaluation of the probability that this judgment is correct. Confidence is a feeling, which reflects the coherence of the information and the cognitive ease of processing it. It is wise to take admissions of uncertainty seriously, but declarations of high confidence mainly tell you that an individual has constructed a coherent story in his mind, not necessarily that the story is true.
Page 214 · 3775
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 individual differences in achievement. The logic is simple: if individual differences in any one year are due entirely to luck, the ranking of investors and funds will vary erratically and the year - to - year correlation will be zero. Where there is skill, however, the rankings will be more stable.
Page 216 · 3807
The illusion of skill is not only an individual aberration; it is deeply ingrained in the culture of the industry. Facts that challenge such basic assumptions — and thereby threaten people’s livelihood and self - esteem — are simply not absorbed. The mind does not digest them.
Page 216 · 3816
Cognitive illusions can be more stubborn than visual illusions. What you learned about the Müller - Lyer illusion did not change the way you see the lines, but it changed your behavior.
Page 217 · 3819
When asked about the length of the lines, you will report your informed belief, not the illusion that you continue to see.
Page 217 · 3833
the illusions of validity and skill are supported by a powerful professional culture. We know that people can maintain an unshakable faith in any proposition, however absurd, when they are sustained by a community of like - minded believers.
Page 218 · 3838
As Nassim Taleb pointed out in The Black Swan, our tendency to construct and believe coherent narratives of the past makes it difficult for us to accept the limits of our forecasting ability. Everything makes sense in hindsight, a fact that financial pundits exploit every evening as they offer convincing accounts of the day’s events.
Page 218 · 3841
The illusion that we understand the past fosters overconfidence in our ability to predict the future.
Page 218 · 3845
It is hard to think of the history of the twentieth century, including its large social movements, without bringing in the role of Hitler, Stalin, and Mao Zedong. But there was a moment in time, just before an egg was fertilized, when there was a fifty - fifty chance that the embryo that became Hitler could have been a female.
Page 218 · 3849
The fertilization of these three eggs had momentous consequences, and it makes a joke of the idea that long - term developments are predictable.
Page 219 · 3864
people who spend their time, and earn their living, studying a particular topic produce poorer predictions than dart - throwing monkeys who would have distributed their choices evenly over the options.
Page 219 · 3866
Those who know more forecast very slightly better than those who know less. But those with the most knowledge are often less reliable. The reason is that the person who acquires more knowledge develops an enhanced illusion of her skill and becomes unrealistically overconfident.
Page 219 · 3873
experts resisted admitting that they had been wrong, and when they were compelled to admit error, they had a large collection of excuses:
Page 220 · 3888
The first lesson is that errors of prediction are inevitable because the world is unpredictable. The second is that high subjective confidence is not to be trusted as an indicator of accuracy (low confidence could be more informative). Short - term trends can be forecast, and behavior and achievements can be predicted with fair accuracy from previous behaviors and achievements
21 Intuitions vs. Formulas
Page 223 · 3924
significantly better accuracy for the algorithms.
Page 223 · 3932
the accuracy of experts was matched or exceeded by a simple algorithm.
Page 224 · 3949
Why are experts inferior to algorithms? One reason, which Meehl suspected, is that experts try to be clever, think outside the box, and consider complex combinations of features in making their predictions. Complexity may work in the odd case, but more often than not it reduces validity.
Page 224 · 3957
Another reason for the inferiority of expert judgment is that humans are incorrigibly inconsistent in making summary judgments of complex information. When asked to evaluate the same information twice, they frequently give different answers.
Page 225 · 3965
The widespread inconsistency is probably due to the extreme context dependency of System 1. We know from studies of priming that unnoticed stimuli in our environment have a substantial influence on our thoughts and actions. These influences fluctuate from moment to moment. The brief pleasure of a cool breeze on a hot day may make you slightly more positive and optimistic about whatever you are evaluating at the time.
Page 225 · 3971
Given the same input, they always return the same answer. When predictability is poor — which it is in most of the studies reviewed by Meehl and his followers — inconsistency is destructive of any predictive validity.
Page 225 · 3973
to maximize predictive accuracy, final decisions should be left to formulas, especially in low - validity environments.
Page 228 · 4019
the correct judgments involve short - term predictions in the context of the therapeutic interview, a skill in which therapists may have years of practice. The tasks at which they fail typically require long - term predictions about the patient’s future.
Page 229 · 4042
The prejudice against algorithms is magnified when the decisions are consequential.
Page 229 · 4046
The story of a child dying because an algorithm made a mistake is more poignant than the story of the same tragedy occurring as a result of human error, and the difference in emotional intensity is readily translated into a moral preference. Fortunately, the hostility to algorithms will probably soften as their role in everyday life continues to expand.
Page 232 · 4107
If you are serious about hiring the best possible person for the job, this is what you should do. First, select a few traits that are prerequisites for success in this position (technical proficiency, engaging personality, reliability, and so on). Don’t overdo it — six dimensions is a good number. The traits you choose should be as independent as possible from each other, and you should feel that you can assess them reliably by asking a few factual questions. Next, make a list of those questions for each trait and think about how you will score it, say on a 1 – 5 scale. You should have an idea of what you will call “very weak” or “very strong.”
Page 232 · 4113
To avoid halo effects, you must collect the information on one trait at a time, scoring each before you move on to the next one. Do not skip around. To evaluate each candidate, add up the six scores. Because you are in charge of the final decision, you should not do a “close your eyes.” Firmly resolve that you will hire the candidate whose final score is the highest, even if there is another one whom you like better
22 Expert Intuition: When Can We Trust It?
Page 236 · 4177
the recognition - primed decision (RPD) model, which applies to firefighters but also describes expertise in other domains, including chess. The process involves both System 1 and System 2. In the first phase, a tentative plan comes to mind by an automatic function of associative memory — System 1. The next phase is a deliberate process in which the plan is mentally simulated to check if it will work — an operation of System 2.
Page 237 · 4188
the mystery of knowing without knowing is not a distinctive feature of intuition; it is the norm of mental life.
Page 238 · 4199
Pavlov’s famous conditioning experiments, in which the dogs learned to recognize the sound of the bell as a signal that food was coming. What Pavlov’s dogs learned can be described as a learned hope. Learned fears are even more easily acquired.
Page 239 · 4233
Earlier I traced people’s confidence in a belief to two related impressions: cognitive ease and coherence. We are confident when the story we tell ourselves comes easily to mind, with no contradiction and no competing scenario. But ease and coherence do not guarantee that a belief held with confidence is true. The associative machine is set to suppress doubt and to evoke ideas and information that are compatible with the currently dominant story.
Page 239 · 4238
the confidence that people have in their intuitions is not a reliable guide to their validity. In other words, do not trust anyone — including yourself — to tell you how much you should trust their judgment.
Page 240 · 4241
When do they display an illusion of validity? The answer comes from the two basic conditions for acquiring a skill: an environment that is sufficiently regular to be predictable an opportunity to learn these regularities through prolonged practice When both these conditions are satisfied, intuitions are likely to be skilled.
Page 241 · 4258
Statistical algorithms greatly outdo humans in noisy environments for two reasons: they are more likely than human judges to detect weakly valid cues and much more likely to maintain a modest level of accuracy by using such cues consistently.
Page 241 · 4262
In the absence of valid cues, intuitive “hits” are due either to luck or to lies.
Page 241 · 4263
Remember this rule: intuition cannot be trusted in the absence of stable regularities in the environment.
Page 242 · 4280
Among medical specialties, anesthesiologists benefit from good feedback, because the effects of their actions are likely to be quickly evident. In contrast, radiologists obtain little information about the accuracy of the diagnoses they make and about the pathologies they fail to detect. Anesthesiologists are therefore in a better position to develop useful intuitive skills.
Page 242 · 4293
When can you trust an experienced professional who claims to have an intuition? Our conclusion was that for the most part it is possible to distinguish intuitions that are likely to be valid from those that are likely to be bogus. As in the judgment of whether a work of art is genuine or a fake, you will usually do better by focusing on its provenance than by looking at the piece itself. If the environment is sufficiently regular and if the judge has had a chance to learn its regularities, the associative machinery will recognize situations and generate quick and accurate predictions and decisions. You can trust someone’s intuitions if these conditions are met.
Page 244 · 4329
23 The Outside View
Page 247 · 4377
The inside view is the one that all of us, including Seymour, spontaneously adopted to assess the future of our project. We focused on our specific circumstances and searched for evidence in our own experiences.
Page 248 · 4383
the main problem was that we failed to allow for what Donald Rumsfeld famously called the “unknown unknowns.”
Page 248 · 4388
There are many ways for any plan to fail, and although most of them are too improbable to be anticipated, the likelihood that something will go wrong in a big project is high.
Page 248 · 4399
The argument for the outside view should be made on general grounds: if the reference class is properly chosen, the outside view will give an indication of where the ballpark is, and it may suggest, as it did in our case, that the inside - view forecasts are not even close to it.
Page 249 · 4412
Pallid” statistical information is routinely discarded when it is incompatible with one’s personal impressions of a case. In the competition with the inside view, the outside view doesn’t stand a chance.
Page 250 · 4423
the term planning fallacy to describe plans and forecasts that are unrealistically close to best - case scenarios could be improved by consulting the statistics of similar cases
Page 250 · 4439
Errors in the initial budget are not always innocent. The authors of unrealistic plans are often driven by the desire to get the plan approved — whether by their superiors or by a client — supported by the knowledge that projects are rarely abandoned unfinished merely because of overruns in costs or completion times
Page 251 · 4448
Planners should therefore make every effort to frame the forecasting problem so as to facilitate utilizing all the distributional information that is available.
Page 251 · 4451
Using such distributional information from other ventures similar to that being forecasted is called taking an “outside view” and is the cure to the planning fallacy. The treatment for the planning fallacy has now acquired a technical name, reference class forecasting, and Flyvbjerg has applied it to transportation projects in several countries. The outside view is implemented by using a large database, which provides information on both plans and outcomes for hundreds of projects all over the world, and can be used to provide statistical information about the likely overruns of cost and time, and about the likely underperformance of projects of different types.
Page 251 · 4456
The forecasting method
Page 251 · 4457
Identify an appropriate reference class
Page 251 · 4457
Obtain the statistics of the reference class
Page 251 · 4459
Use specific information about the case to adjust the baseline prediction,
24 The Engine of Capitalism
Page 255 · 4509
In terms of its consequences for decisions, the optimistic bias may well be the most significant of the cognitive biases. Because optimistic bias can be both a blessing and a risk, you should be both happy and wary if you are temperamentally optimistic.
Page 255 · 4513
optimistic attitude is largely inherited, and it is part of a general disposition for well - being, which may also include a preference for seeing the bright side of everything
Page 255 · 4516
Optimists are normally cheerful and happy, and therefore popular; they are resilient in adapting to failures and hardships, their chances of clinical depression are reduced, their immune system is stronger, they take better care of their health, they feel healthier than others and are in fact likely to live longer.
Page 256 · 4519
are more likely to remarry after divorce (the classic “triumph of hope over experience”),
Page 256 · 4521
Of course, the blessings of optimism are offered only to individuals who are only mildly biased and who are able to “accentuate the positive” without losing track of reality.
Page 256 · 4528
the people who have the greatest influence on the lives of others are likely to be optimistic and overconfident, and to take more risks than they realize.
Page 256 · 4534
When action is needed, optimism, even of the mildly delusional variety, may be a good thing.
Page 256 · 4535
The chances that a small business will survive for five years in the United States are about 35%. But the individuals who open such businesses do not believe that the statistics apply to them.
Page 257 · 4544
One of the benefits of an optimistic temperament is that it encourages persistence in the face of obstacles. But persistence can be costly.
Page 257 · 4558
Psychologists have confirmed that most people genuinely believe that they are superior to most others on most desirable traits
Page 258 · 4572
The damage caused by overconfident CEOs is compounded when the business press anoints them as celebrities;
Page 258 · 4573
firms with award - winning CEOs subsequently underperform, in terms both of stock and of operating performance.
Page 259 · 4583
The optimistic risk taking of entrepreneurs surely contributes to the economic dynamism of a capitalistic society, even if most risk takers end up disappointed.
Page 259 · 4590
Cognitive biases play an important role, notably the System 1 feature WYSIATI.
Page 259 · 4591
We focus on our goal, anchor on our plan, and neglect relevant base rates, exposing ourselves to the planning fallacy. We focus on what we want to do and can do, neglecting the plans and skills of others. Both in explaining the past and in predicting the future, we focus on the causal role of skill and neglect the role of luck. We are therefore prone to an illusion of control. We focus on what we know and neglect what we do not know, which makes us overly confident in our beliefs.
Page 259 · 4594
The observation that “90% of drivers believe they are better than average” is a
Page 259 · 4596
a prime example of a more general above average effect.
Page 260 · 4613
Page 261 · 4622
The familiar System 1 processes of WY SIATI and substitution produce both competition neglect and the above - average effect. The consequence of competition neglect is excess entry: more competitors enter the market than the market can profitably sustain, so their average outcome is a loss. The outcome is disappointing for the typical entrant in the market, but the effect on the economy as a whole could well be positive. In fact, Giovanni Dosi and Dan Lovallo call entrepreneurial firms that fail but signal new markets to more qualified competitors “optimistic martyrs” — good for the economy but bad for their investors.
Page 261 · 4630
financial officers of large corporations had no clue about the short - term future of the stock market; the correlation between their estimates and the true value was slightly less than zero !
Page 262 · 4637
CFOs were grossly overconfident about their ability to forecast the market. Overconfidence is another manifestation of WYSIATI:
Page 262 · 4652
people and firms reward the providers of dangerously misleading information more than they reward truth tellers.
Page 263 · 4667
There is no evidence that risk takers in the economic domain have an unusual appetite for gambles on high stakes; they are merely less aware of risks than more timid people are.
Page 263 · 4671
the contribution of optimism to good implementation is certainly positive. The main benefit of optimism is resilience in the face of setbacks. According to Martin Seligman, the founder of positive psychology, an “optimistic explanation style” contributes to resilience by defending one’s self - image. In essence, the optimistic style involves taking credit for successes but little blame for failures.
Page 264 · 4685
overconfidence is a direct consequence of features of System 1 that can be tamed — but not vanquished. The main obstacle is that subjective confidence is determined by the coherence of the story one has constructed, not by the quality and amount of the information that supports it.
Page 264 · 4689
the premortem. The procedure is simple: when the organization has almost come to an important decision but has not formally committed itself, Klein proposes gathering for a brief session a group of individuals who are knowledgeable about the decision. The premise of the session is a short speech: “Imagine that we are a year into the future. We implemented the plan as it now exists. The outcome was a disaster. Please take 5 to 10 minutes to write a brief history of that disaster.”
PART IV: CHOICES
25 Bernoulli’s Errors
Page 270 · 4731
Every significant choice we make in life comes with some uncertainty
Page 272 · 4777
In 1738, the Swiss scientist Daniel Bernoulli anticipated Fechner’s reasoning and applied it to the relationship between the psychological value or desirability of money (now called utility) and the actual amount of money. He argued that a gift of 10 ducats has the same utility to someone who already has 100 ducats as a gift of 20 ducats to someone whose current wealth is 200 ducats.
Page 273 · 4793
Bernoulli observed that most people dislike risk (the chance of receiving the lowest possible outcome), and if they are offered a choice between a gamble and an amount equal to its expected value they will pick the sure thing.
Page 273 · 4796
His idea was straightforward: people’s choices are based not on dollar values but on the psychological values of outcomes, their utilities.
Page 274 · 4823
The longevity of the theory is all the more remarkable because it is seriously flawed. The errors of a theory are rarely found in what it asserts explicitly; they hide in what it ignores or tacitly assumes.
Page 275 · 4826
Today Jack and Jill each have a wealth of 5 million. Yesterday, Jack had 1 million and Jill had 9 million. Are they equally happy? (Do they have the same utility?)
Page 275 · 4828
Bernoulli’s theory assumes that the utility of their wealth is what makes people more or less happy. Jack and Jill have the same wealth, and the theory therefore asserts that they should be equally happy, but you do not need a degree in psychology to know that today Jack is elated and Jill despondent.
Page 275 · 4832
The happiness that Jack and Jill experience is determined by
Page 275 · 4833
their reference points (1 million for Jack, 9 million for Jill).
Page 276 · 4865
The mystery is how a conception of the utility of outcomes that is vulnerable to such obvious counterexamples survived for so long.
Page 277 · 4866
I call it theory - induced blindness: once you have accepted a theory and used it as a tool in your thinking, it is extraordinarily difficult to notice its flaws.
Page 277 · 4871
“This theory is seriously wrong because it ignores the fact that utility depends on the history of one’s wealth, not only on present wealth.”
26 Prospect Theory
Page 280 · 4917
The explanation for this risk - seeking choice is the mirror image of the explanation of risk aversion in problem 1: the (negative) value of losing $ 900 is much more than 90% of the (negative) value of losing $ 1,000. The sure loss is very aversive, and this drives you to take the risk.
Page 280 · 4920
people become risk seeking when all their options are bad, but theory - induced blindness had prevailed.
Page 281 · 4946
the weakness of Bernoulli’s model. His theory is too simple and lacks a moving part. The missing variable is the reference point, the earlier state relative to which gains and losses are evaluated.
Page 281 · 4948
in prospect theory you also need to know the reference state.
Page 281 · 4952
there are three cognitive features at the heart of prospect theory.
Page 282 · 4953
operating characteristics of System 1.
Page 282 · 4954
Evaluation is relative to a neutral reference point, which is sometimes referred to as an “adaptation level.”
Page 282 · 4960
A principle of diminishing sensitivity applies to both sensory dimensions and the evaluation of changes of wealth.
Page 282 · 4962
The third principle is loss aversion. When directly compared or weighted against each other, losses loom larger than gains. This asymmetry between the power of positive and negative expectations or experiences has an evolutionary history. Organisms that treat threats as more urgent than opportunities have a better chance to survive and reproduce.
Page 283 · 4973
Many of the options we face in life are “mixed”: there is a risk of loss and an opportunity for gain, and we must decide whether to accept the gamble or reject it.
Page 284 · 4985
“losses loom larger than gains” and that people are loss averse.
Page 284 · 4987
For many people the answer is about $ 200, twice as much as the loss. The “loss aversion ratio” has been estimated in several experiments and is usually in the range of 1.5 to 2.5.
Page 287 · 5054
prospect theory cannot deal with disappointment. Disappointment and the anticipation of disappointment are real, however, and the failure to acknowledge them is as obvious a flaw as the counterexamples that I invoked to criticize Bernoulli’s theory. Prospect theory and utility theory also fail to allow for regret.
Page 288 · 5064
In regret, the experience of an outcome depends on an option you could have adopted but did not.
27 The Endowment Effect
Page 289 · 5082
Page 290 · 5085
Each “indifference curve” connects the combinations of the two goods that are equally desirable — they have the same utility.
Page 290 · 5087
the more leisure you have, the less you care for an extra day of it, and each added day is worth less than the one before.
Page 290 · 5089
All locations on an indifference curve are equally attractive. This is literally what indifference means: you don’t care where you are on an indifference curve.
Page 290 · 5094
What is missing from the figure is an indication of the individual’s current income and leisure.
Page 292 · 5129
two aspects of choice that the standard model of indifference curves does not predict. First, tastes are not fixed; they vary with the reference point. Second, the disadvantages of a change loom larger than its advantages, inducing a bias that favors the status quo. Of course, loss aversion does not imply that you never prefer to change your situation; the benefits of an opportunity may exceed even overweighted losses. Loss aversion implies only that choices are strongly biased in favor of the reference situation (and generally biased to favor small rather than large changes).
Page 293 · 5148
Owning the good appeared to increase its value. Richard Thaler found many examples of what he called the endowment effect, especially for goods that are not regularly traded.
Page 293 · 5157
the loss - averse value function of prospect theory could explain the endowment effect and some other puzzles in his collection.
Page 293 · 5158
Prospect theory suggested that the willingness to buy or sell the bottle depends on the reference point — whether or not the professor owns the bottle now. If he owns it, he considers the pain of giving up the bottle. If he does not own it, he considers the pleasure of getting the bottle. The values were unequal because of loss aversion: giving up a bottle of nice wine is more painful than getting an equally good bottle is pleasurable.
Page 294 · 5171
the endowment effect is not universal. If someone asks you to change a $ 5 bill for five singles, you hand over the five ones without any sense of loss.
Page 294 · 5175
These cases of routine trading are not essentially different from the exchange of a $ 5 bill for five singles. There is no loss aversion on either side of routine commercial exchanges.
Page 294 · 5178
The distinctive feature is that both the shoes the merchant sells you and the money you spend from your budget for shoes are held “for exchange.” They are intended to be traded for other goods. Other goods, such as wine and Super Bowl tickets, are held “for use,” to be consumed or otherwise enjoyed. Your leisure time and the standard of living that your income supports are also not intended for sale or exchange.
Page 294 · 5181
the contrast between goods that are held for use and for exchange.
Page 295 · 5189
those who own a token that is of little value to them (because their redemption values are low) end up selling their token at a profit to someone who values it more.
Page 295 · 5202
The magic of the market did not work for a good that the owners expected to use.
Page 296 · 5211
The high price that Sellers set reflects the reluctance to give up an object that they already own, a reluctance that can be seen in babies who hold on fiercely to a toy and show great agitation when it is taken away. Loss aversion is built into the automatic evaluations of System 1.
Page 296 · 5215
Selling goods that one would normally use activates regions of the brain that are associated with disgust and pain.
Page 296 · 5217
Brain recordings also indicate that buying at especially low prices is a pleasurable event.
Page 297 · 5231
The fundamental ideas of prospect theory are that reference points exist, and that losses loom larger than corresponding gains.
Page 297 · 5235
For a rational agent, the buying price is irrelevant history — the current market value is all that matters. Not so for Humans in a down market for housing. Owners who have a high reference point and thus face higher losses set a higher price on their dwelling, spend a longer time trying to sell their home, and eventually receive more money.
Page 297 · 5240
No endowment effect is expected when owners view their goods as carriers of value for future exchanges, a widespread attitude in routine commerce and in financial markets.
Page 297 · 5242
novice traders were reluctant to part with the cards they owned, but that this reluctance eventually disappeared with trading experience.
Page 298 · 5256
Veteran traders have apparently learned to ask the correct question, which is “How much do I want to have that mug, compared with other things I could have instead?” This is the question that Econs ask, and with this question there is no endowment effect, because the asymmetry between the pleasure of getting and the pain of giving up is irrelevant.
Page 298 · 5259
the poor are another group in which we do not expect to find the endowment effect. Being poor, in prospect theory, is living below one’s reference point. There are goods that the poor need and cannot afford, so they are always “in the losses.”
Page 298 · 5264
Their problem is that all their choices are between losses.
28 Bad Events
Page 301 · 5291
The eyes on the right, narrowed by the raised cheeks of a smile, express happiness — and they are not nearly as exciting.
Page 301 · 5295
the amygdala, which has a primary role as the “threat center” of the brain, although it is also activated in other emotional states. Images of the brain showed an intense response of the amygdala to a threatening picture that the viewer did not recognize.
Page 301 · 5299
angry faces (a potential threat) to be processed faster and more efficiently than schematic happy faces. Some experimenters have reported that an angry face “pops out” of a crowd of happy faces, but a single happy face does not stand out in an angry crowd. The brains of humans and other animals contain a mechanism that is designed to give priority to bad news.
Page 301 · 5303
this circuit improves the animal’s odds of living long enough to reproduce.
Page 301 · 5305
threats are privileged above opportunities, as they should be.
Page 301 · 5306
Emotionally loaded words quickly attract attention, and bad words (war, crime) attract attention faster than do happy words (peace, love).
Page 302 · 5313
The psychologist Paul Rozin, an expert on disgust, observed that a single cockroach will completely wreck the appeal of a bowl of cherries, but a cherry will do nothing at all for a bowl of cockroaches. As he points out, the negative trumps the positive in many ways, and loss aversion is one of many manifestations of a broad negativity dominance
Page 302 · 5317
“Bad emotions, bad parents, and bad feedback have more impact than good ones, and bad information is processed more thoroughly than good. The self is more motivated to avoid bad self - definitions than to pursue good ones. Bad impressions and bad stereotypes are quicker to form and more resistant to disconfirmation than good ones.”
Page 302 · 5321
stable relationship requires that good interactions outnumber bad interactions by at least 5 to 1.
Page 302 · 5322
We all know that a friendship that may take years to develop can be ruined by a single action.
Page 303 · 5334
The aversion to the failure of not reaching the goal is much stronger than the desire to exceed it.
Page 303 · 5335
People often adopt short - term goals that they strive to achieve but not necessarily to exceed. They are likely to reduce their efforts when they have reached an immediate goal, with results that sometimes violate economic logic.
Page 303 · 5339
Economic logic implies that cabdrivers should work many hours on rainy days and treat themselves to some leisure on mild days, when they can “buy” leisure at a lower price. The logic of loss aversion suggests the opposite: drivers who have a fixed daily target will work many more hours when the pickings are slim and go home early when rain - drenched customers are begging to be taken somewhere.
Page 304 · 5363
Loss aversion creates an asymmetry that makes agreements difficult to reach. The concessions you make to me are my gains, but they are your losses; they cause you much more pain than they give me pleasure.
Page 305 · 5372
Animals, including people, fight harder to prevent losses than to achieve gains. In the world of territorial animals, this principle explains the success of defenders.
Page 305 · 5381
Loss aversion is a powerful conservative force that favors minimal changes from the status quo in the lives of both institutions and individuals.
29 The Fourfold Pattern
Page 310 · 5469
Most often, however, you are just an observer to a global evaluation that your System 1 delivers.
Page 311 · 5489
The improvement from 95% to 100% is another qualitative change that has a large impact, the certainty effect. Outcomes that are almost certain are given less weight than their probability justifies.
Page 312 · 5498
Because of the possibility effect, we tend to overweight small risks and are willing to pay far more than expected value to eliminate them altogether. The psychological difference between a 95% risk of disaster and the certainty of disaster appears to be even greater; the sliver of hope that everything could still be okay looms very large. Overweighting of small probabilities increases the attractiveness of both gambles and insurance policies. The conclusion is straightforward: the decision weights that people assign to outcomes are not identical to the probabilities of these outcomes, contrary to the expectation principle. Improbable outcomes are overweighted — this is the possibility effect. Outcomes that are almost certain are underweighted relative to actual certainty. The expectation principle, by which values are weighted by their probability, is poor psychology.
Page 315 · 5560
To appreciate the asymmetry between the possibility effect and the certainty effect, imagine first that you have a 1% chance to win $ 1 million. You will know the outcome tomorrow. Now, imagine that you are almost certain to win $ 1 million, but there is a 1% chance that you will not. Again, you will learn the outcome tomorrow. The anxiety of the second situation appears to be more salient than the hope in the first. The certainty effect is also more striking than the possibility effect if the outcome is a surgical disaster rather than a financial gain.
Page 315 · 5565
The combination of the certainty effect and possibility effects at the two ends of the probability scale is inevitably accompanied by inadequate sensitivity to intermediate probabilities.
Page 316 · 5572
Most of us spend very little time worrying about nuclear meltdowns or fantasizing about large inheritances from unknown relatives.
Page 316 · 5577
Because of the possibility effect, the worry is not proportional to the probability of the threat. Reducing or mitigating the risk is not adequate; to eliminate the worry the probability must be brought down to zero.
Page 317 · 5599
The fourfold pattern
Page 317 · 5600
The top left is the one that Bernoulli discussed: people are averse to risk when they consider prospects with a substantial chance to achieve a large gain. They are willing to accept less than the expected value of a gamble to lock in a sure gain.
Page 317 · 5602
The possibility effect in the bottom left cell explains why lotteries are popular. When the top prize is very large, ticket buyers appear indifferent to the fact that their chance of winning is minuscule.
Page 318 · 5605
what people acquire with a ticket is more than a chance to win; it is the right to dream pleasantly of winning.
Page 318 · 5606
The bottom right cell is where insurance is bought. People are willing to pay much more for insurance than expected value — which is how insurance companies cover their costs and make their profits. Here again, people buy more than protection against an unlikely disaster; they eliminate a worry and purchase peace of mind.
Page 318 · 5608
top right cell
Page 318 · 5610
just as risk seeking in the domain of losses as we were risk averse in the domain of gains.
Page 318 · 5613
we identified two reasons for this effect.
Page 318 · 5613
First, there is diminishing sensitivity. The sure loss is very aversive because the reaction to a loss of $ 900 is more than 90% as intense as the reaction to a loss of $ 1,000.
Page 318 · 5615
The second factor may be even more powerful: the decision weight that corresponds to a probability of 90% is only about 71, much lower than the probability.
Page 318 · 5620
In the bottom row, however, the two factors operate in opposite directions: diminishing sensitivity continues to favor risk aversion for gains and risk seeking for losses, but the overweighting of low probabilities overcomes this effect and produces the observed pattern of gambling for gains and caution for losses. Many unfortunate human situations unfold in the top right cell. This is where people who face very bad options take desperate gambles, accepting a high probability of making things worse in exchange for a small hope of avoiding a large loss. Risk taking of this kind often turns manageable failures into disasters. The thought of accepting the large sure loss is too painful, and the hope of complete relief too enticing, to make the sensible decision that it is time to cut one’s losses.
30 Rare Events
Page 322 · 5687
An extremely vivid image of death and damage, constantly reinforced by media attention and frequent conversations, becomes highly accessible, especially if it is associated with a specific situation such as the sight of a bus. The emotional arousal is associative, automatic, and uncontrolled, and it produces an impulse for protective action. System 2 may “know” that the probability is low, but this knowledge does not eliminate the self - generated discomfort and the wish to avoid it. System 1 cannot be turned off. The emotion is not only disproportionate to the probability, it is also insensitive to the exact level of probability.
Page 323 · 5697
the actual probability is inconsequential; only possibility matters.
Page 323 · 5700
Overweighting of unlikely outcomes is rooted in System 1 features that are familiar by now.
Page 324 · 5711
Although overestimation and overweighting are distinct phenomena, the same psychological mechanisms are involved in both: focused attention, confirmation bias, and cognitive ease.
Page 324 · 5721
Our mind has a useful capability to focus spontaneously on whatever is odd, different, or unusual.
Page 325 · 5726
The probability of a rare event is most likely to be overestimated when the alternative is not fully specified.
Page 326 · 5748
prospect theory differs from utility theory in the relationship it suggests between probability and decision weight. In utility theory, decision weights and probabilities are the same.
Page 326 · 5751
In prospect theory, variations of probability have less effect on decision weights.
Page 329 · 5807
denominator neglect. If your attention is drawn to the winning marbles, you do not assess the number of nonwinning marbles with the same care. Vivid imagery contributes to denominator neglect,
Page 329 · 5810
The distinctive vividness of the winning marbles increases the decision weight of that event, enhancing the possibility effect.
Page 329 · 5813
The idea of denominator neglect helps explain why different ways of communicating risks vary so much in their effects.
Page 329 · 5814
Page 329 · 5815
“One of 100,000
Page 329 · 5815
The second statement does something to your mind that the first does not: it calls up the image of an individual child who is permanently disabled by a vaccine;
Page 329 · 5817
low - probability events are much more heavily weighted when described in terms of relative frequencies (how many) than when stated in more abstract terms of “chances,” “risk,” or “probability” (how likely). As we have seen, System 1 is much better at dealing with individuals than categories.
Page 332 · 5870
on one major cause of underweighting of rare events, both in experiments and in the real world: many participants never experience the rare event !
Page 332 · 5873
They point to the public’s tepid response to long - term environmental threats as an example.
Page 333 · 5893
And when there is no overweighting, there will be neglect. When it comes to rare probabilities, our mind is not designed to get things quite right.
Page 333 · 5898
“It’s the familiar disaster cycle. Begin by exaggeration and overweighting, then neglect sets in.”
31 Risk Policies
Page 334 · 5916
people tend to be risk averse in the domain of gains and risk seeking in the domain of losses.
Page 335 · 5917
73% of respondents chose A in decision i and D in decision ii and only 3% favored the combination of B and C.
Page 335 · 5925
Option BC actually dominates option AD
Page 335 · 5930
the logical consistency of Human preferences for what it is — a hopeless mirage.
Page 335 · 5932
every simple choice formulated in terms of gains and losses can be deconstructed in innumerable ways into a combination of choices, yielding preferences that are likely to be inconsistent.
Page 335 · 5934
is costly to be risk averse for gains and risk seeking for losses.
Page 336 · 5937
There were two ways of construing decisions i and ii: narrow framing: a sequence of two simple decisions, considered separately broad framing: a single comprehensive decision, with four options
Page 336 · 5942
A rational agent will of course engage in broad framing, but Humans are by nature narrow framers.
Page 337 · 5953
a conclusion that violates common sense, if not rationality: the offer of a hundred gambles is so attractive that no sane person would reject it.
Page 339 · 6010
The combination of loss aversion and narrow framing is a costly curse.
Page 339 · 6011
Closely following daily fluctuations is a losing proposition, because the pain of the frequent small losses exceeds the pleasure of the equally frequent small gains. Once a quarter is enough, and may be more than enough for individual investors. In addition to improving the emotional quality of life, the deliberate avoidance of exposure to short - term outcomes improves the quality of both decisions and outcomes. The typical short - term reaction to bad news is increased loss aversion.
Page 340 · 6024
risk policy that aggregates decisions is analogous to the outside view of planning problems that I discussed earlier. The outside view shifts the focus from the specifics of the current situation to the statistics of outcomes in similar situations. The outside view is a broad frame for thinking about plans. A risk policy is a broad frame that embeds a particular risky choice in a set of similar choices. The outside view and the risk policy are remedies against two distinct biases that affect many decisions: the exaggerated optimism of the planning fallacy and the exaggerated caution induced by loss aversion.
Page 340 · 6033
The combination of the outside view with a risk policy should be the goal.
32 Keeping Score
Page 343 · 6063
For Humans, mental accounts are a form of narrow framing; they keep things under control and manageable by a finite mind.
Page 344 · 6090
a massive preference for selling winners rather than losers — a bias that has been given an opaque label: the disposition effect. The disposition effect is an instance of narrow framing. The investor has set up an account for each share that she bought, and she wants to close every account as a gain. A rational agent would have a comprehensive view of the portfolio and sell the stock that is least likely to do well in the future, without considering whether it is a winner or a loser.
Page 344 · 6097
The purchase price does matter and should be considered, even by Econs. The disposition effect is a costly bias because the question of whether to sell winners or losers has a clear answer, and it is not that it makes no difference.
Page 345 · 6109
The decision to invest additional resources in a losing account, when better investments are available, is known as the sunk - cost fallacy, a costly mistake that is observed in decisions large and small.
Page 346 · 6130
Regret is an emotion, and it is also a punishment that we administer to ourselves. The fear of regret is a factor in many of the decisions that people make (“Don’t do this, you will regret it” is a common warning), and the actual experience of regret is familiar.
Page 346 · 6132
regret is “accompanied by feelings that one should have known better, by a sinking feeling, by thoughts about the mistake one has made and the opportunities lost, by a tendency to kick oneself and to correct one’s mistake, and by wanting to undo the event and to get a second chance.”
Page 348 · 6163
Who feels greater
Page 348 · 6163
8% of respondents say Paul, 92% say George. This is curious, because the situations of the two investors are objectively identical. They both now own stock A and both would have been better off by the same amount if they owned stock B. The only difference is that George got to where he is by acting, whereas Paul got to the same place by failing to act.
Page 348 · 6166
people expect to have stronger emotional reactions (including regret) to an outcome that is produced by action than to the same outcome when it is produced by inaction.
Page 348 · 6180
The asymmetry in the risk of regret favors conventional and risk - averse choices.
Page 354 · 6278
The familiar System 1 mechanisms of substitution and intensity matching translate the strength of the emotional reaction to the story onto a monetary scale, creating a large difference in dollar awards.
Page 354 · 6284
The discrepancy between single and joint evaluation of the burglary scenario belongs to a broad family of reversals of judgment and choice.
Page 355 · 6300
This is a preference reversal: people choose B over A, but if they imagine owning only one of them, they set a higher value on A than on B. As in the burglary scenarios, the preference reversal occurs because joint evaluation focuses attention on an aspect of the situation — the fact that bet A is much less safe than bet B — which was less salient in single evaluation. The features that caused the difference between the judgments of the options in single evaluation — the poignancy of the victim being in the wrong grocery store and the anchoring on the prize — are suppressed or irrelevant when the options are evaluated jointly. The emotional reactions of System 1 are much more likely to determine single evaluation;
Page 360 · 6397
evaluability hypothesis: The number of entries is given no weight in single evaluation, because the numbers are not “evaluable” on their own. In joint evaluation, in contrast, it is immediately obvious that dictionary B is superior on this attribute, and it is also apparent that the number of entries is far more important than the condition of the cover.
Page 361 · 6420
Salespeople quickly learn that manipulation of the context in which customers see a good can profoundly influence preferences.
Page 361 · 6421
the comparative judgment, which necessarily involves System 2, is more likely to be stable than single evaluations, which often reflect the intensity of emotional responses of System 1.
34 Frames and Reality
Page 363 · 6451
the meaning of a sentence is what happens in your associative machinery while you understand it.
Page 363 · 6454
equivalent statements evoke different reactions makes it impossible for Humans to be as reliably rational as Econs.
Page 364 · 6456
the label of framing effects to the unjustified influences of formulation on beliefs and preferences.
Page 364 · 6465
Choices are not reality - bound because System 1 is not reality - bound.
Page 364 · 6470
the difference, if allowed, would be labeled a cash discount, not a credit surcharge.
Page 364 · 6471
people will more readily forgo a discount than pay a surcharge. The two may be economically equivalent, but they are not emotionally equivalent.
Page 367 · 6509
Page 367 · 6513
The one - month survival rate is 90%. There is 10% mortality in the first month. You already know the results: surgery was much more popular in the former frame (84% of physicians chose it) than in the latter (where 50% favored radiation).
Page 367 · 6517
System 1, as we have gotten to know it, is rarely indifferent to emotional words: mortality is bad, survival is good, and 90% survival sounds encouraging whereas 10% mortality is frightening
Page 368 · 6542
The different choices in the two frames fit prospect theory, in which choices between gambles and sure things are resolved differently, depending on whether the outcomes are good or bad. Decision makers tend to prefer the sure thing over the gamble (they are risk averse) when the outcomes are good. They tend to reject the sure thing and accept the gamble (they are risk seeking) when both outcomes are negative.
Page 369 · 6553
we must get used to the idea that even important decisions are influenced, if not governed, by System 1.
Page 371 · 6597
the significance of the loss depends on the account to which it is posted. When tickets to a particular show are lost, it is natural to post them to the account associated with that play. The cost appears to have doubled and may now be more than the experience is worth. In contrast, a loss of cash is charged to a “general revenue” account —
Page 371 · 6601
The version in which cash was lost leads to more reasonable decisions. It is a better frame because the loss, even if tickets were lost, is “sunk,” and sunk costs should be ignored.
Page 372 · 6606
Broader frames and inclusive accounts generally lead to more rational decisions.
PART V: TWO SELVES
35 Two Selves
Page 380 · 6725
the retrospective assessments are insensitive to duration and weight two singular moments, the peak and the end, much more than others.
Page 380 · 6727
If the objective is to reduce patients’ memory of pain, lowering the peak intensity of pain could be more important than minimizing the duration of the procedure. By the same reasoning, gradual relief may be preferable to abrupt relief if patients retain a better memory when the pain at the end of the procedure is relatively mild. If the objective is to reduce the amount of pain actually experienced, conducting the procedure swiftly may be appropriate even if doing so increases the peak pain intensity and leaves patients with an awful memory.
Page 381 · 6733
think of this dilemma as a conflict of interests between two selves (which do not correspond to the two familiar systems). The experiencing self is the one that answers the question: “Does it hurt now?” The remembering self is the one that answers the question: “How was it, on the whole?” Memories are all we get to keep from our experience of living, and the only perspective that we can adopt as we think about our lives is therefore that of the remembering self.
Page 381 · 6742
Confusing experience with the memory of it is a compelling cognitive illusion — and it is the substitution that makes us believe a past experience can be ruined. The experiencing self does not have a voice. The remembering self is sometimes wrong, but it is the one that keeps score and governs what we learn from living, and it is the one that makes decisions. What we learn from the past is to maximize the qualities of our future memories, not necessarily of our future experience. This is the tyranny of the remembering self.
Page 385 · 6816
“This is a bad case of duration neglect. You are giving the good and the bad part of your experience equal weight, although the good part lasted ten times as long as the other.”
36 Life as a Story
Page 387 · 6838
Caring for people often takes the form of concern for the quality of their stories, not for their feelings. Indeed, we can be deeply moved even by events that change the stories of people who are already dead.
Page 387 · 6844
The psychologist Ed Diener and his students wondered whether duration neglect and the peak - end rule would govern evaluations of entire lives.
Page 388 · 6856
Adding 5 “slightly happy” years to a very happy life caused a substantial drop in evaluations of the total happiness of that life.
Page 389 · 6872
storing memories is often an important goal, which shapes both the plans for the vacation and the experience of it. The photographer does not view the scene as a moment to be savored but as a future memory to be designed.
Page 389 · 6875
In many cases we evaluate touristic vacations by the story and the memories that we expect to store.
Page 389 · 6879
it is the remembering self that chooses vacations.
Page 389 · 6883
people choose by memory when they decide whether or not to repeat an experience.
37 Experienced Well - Being
Page 392 · 6922
Helen would wish to continue is total absorption in a task, which Mihaly Csikszentmihalyi calls flow — a state that some artists experience in their creative moments and that many other people achieve when enthralled by a film, a book, or
Page 394 · 6979
Attention is key. Our emotional state is largely determined by what we attend to, and we are normally focused on our current activity and immediate environment. There are exceptions, where the quality of subjective experience is dominated by recurrent thoughts rather than by the events of the moment.
Page 395 · 6982
In normal circumstances, however, we draw pleasure and pain from what is happening at the moment, if we attend to it. To get pleasure from eating, for example, you must notice that you are doing it.
Page 395 · 6986
The use of time is one of the areas of life over which people have some control. Few individuals can will themselves to have a sunnier disposition, but some may be able to arrange their lives to spend less of their day commuting, and more time doing things they enjoy with people they like.
Page 396 · 7001
the well - being that people experience as they live their lives the judgment they make when they evaluate their life
Page 396 · 7007
Some aspects of life have more effect on the evaluation of one’s life than on the experience of living. Educational attainment is an example. More education is associated with higher evaluation of one’s life, but not with greater experienced well - being.
Page 396 · 7015
Can money buy happiness? The conclusion is that being poor makes one miserable, and that being rich may enhance one’s life satisfaction, but does not (on average) improve experienced well - being.
Page 397 · 7022
The satiation level beyond which experienced well - being no longer increases was a household income of about $ 75,000 in high - cost areas (it could be less in areas where the cost of living is lower).
38 Thinking About Life
Page 399 · 7049
the decision to get married reflects, for many people, a massive error of affective forecasting. On their wedding day, the bride and the groom know that the rate of divorce is high and that the incidence of marital disappointment is even higher, but they do not believe that these statistics apply to them.
Page 399 · 7064
Norbert Schwarz and his colleagues invited subjects to the lab to complete a questionnaire on life satisfaction. Before they began that task, however, he asked them to photocopy a sheet of paper for him. Half the respondents found a dime on the copying machine, planted there by the experimenter. The minor lucky incident caused a marked improvement in subjects’ reported satisfaction with their life as a whole !
Page 399 · 7069
your current mood is not the only thing that comes to mind when you are asked to evaluate your life. You are likely to be reminded of significant events in your recent past or near future; of recurrent concerns,
Page 400 · 7072
Even when it is not influenced by completely irrelevant accidents such as the coin on the machine, the score that you quickly assign to your life is determined by a small sample of highly available ideas, not by a careful weighting of the domains of your life.
Page 401 · 7092
experienced happiness and life satisfaction are largely determined by the genetics of temperament.
Page 402 · 7124
The concept of happiness is not suddenly changed by finding a dime, but System 1 readily substitutes a small part of it for the whole of it. Any aspect of life to which attention is directed will loom large in a global evaluation. This is the essence of the focusing illusion, which can be described in a single sentence: Nothing in life is as important as you think it is when you are thinking about it.
Page 403 · 7146
The essence of the focusing illusion is WYSIATI, giving too much weight to the climate, too little to all the other determinants of well - being.
Page 404 · 7168
The focusing illusion can cause people to be wrong about their present state of well - being as well as about the happiness of others, and about their own happiness in the future.
Page 405 · 7181
Adaptation to a new situation, whether good or bad, consists in large part of thinking less and less about it. In that sense, most long - term circumstances of life, including paraplegia and marriage, are part - time states that one inhabits only when one attends to them.
Page 406 · 7200
Daniel Gilbert and Timothy Wilson introduced the word miswanting to describe bad choices that arise from errors of affective forecasting. This word deserves to be in everyday language. The focusing illusion (which Gilbert and Wilson call focalism) is a rich source of miswanting.
Page 406 · 7202
In particular, it makes us prone to exaggerate the effect of significant purchases or changed circumstances on our future well - being.
Page 406 · 7208
The focusing illusion creates a bias in favor of goods and experiences that are initially exciting, even if they will eventually lose their appeal. Time is neglected, causing experiences that will retain their attention value in the long term to be appreciated less than they deserve to be.
Page 407 · 7232
The two characters were the intuitive System 1, which does the fast thinking, and the effortful and slower System 2, which does the slow thinking, monitors System 1, and maintains control as best it can within its limited resources. The two species were the fictitious Econs, who live in the land of theory, and the Humans, who act in the real world. The two selves are the experiencing self, which does the living, and the remembering self, which keeps score and makes the choices.
Page 408 · 7233
The remembering self is a construction of System 2. However, the distinctive features of the way it evaluates episodes and lives are characteristics of our memory. Duration neglect and the peak-end rule originate in System 1 and do not necessarily correspond to the values of System 2. We believe that duration is important, but our memory tells us it is not.
Page 409 · 7247
The central fact of our existence is that time is the ultimate finite resource, but the remembering self ignores that reality. The neglect of duration combined with the peak-end rule causes a bias that favors a short period of intense joy over a long period of moderate happiness.
Page 409 · 7250
The mirror image of the same bias makes us fear a short period of intense but tolerable suffering more than we fear a much longer period of moderate pain. Duration neglect also makes us prone to accept a long period of mild unpleasantness because the end will be better, and it favors giving up an opportunity for a long happy period if it is likely to have a poor ending.
Page 409 · 7252
In contrast, the duration-weighted conception of well-being treats all moments of life alike, memorable or not.
Page 413 · 7322
Humans, more than Econs, also need protection from others who deliberately exploit their weaknesses—and especially the quirks of System 1 and the laziness of System 2. Rational agents are assumed to make important decisions carefully, and to use all the information that is provided to them.
Page 413 · 7322
but Humans usually do not.
Page 416 · 7378
System 1 is indeed the origin of much that we do wrong, but it is also the origin of most of what we do right—which is most of what we do. Our thoughts and actions are routinely guided by System 1 and generally are on the mark.
Page 416 · 7390
Intuitive answers come to mind quickly and confidently, whether they originate from skills or from heuristics. There is no simple way for System 2 to distinguish between a skilled and a heuristic response. Its only recourse is to slow down and attempt to construct an answer on its own, which it is reluctant to do because it is indolent.
Page 417 · 7413
We would all like to have a warning bell that rings loudly whenever we are about to make a serious error, but no such bell is available, and cognitive illusions are generally more difficult to recognize than perceptual illusions. The voice of reason may be much fainter than the loud and clear voice of an erroneous intuition, and questioning your intuitions is unpleasant when you face the stress of a big decision.
Page 417 · 7419
Organizations are better than individuals when it comes to avoiding errors, because they naturally think more slowly and have the power to impose orderly procedures. Organizations can institute and enforce the application of useful checklists, as well as more elaborate exercises, such as reference-class forecasting and the premortem.