Thinking, Fast and Slow - Conclusion
This part of [[Thinking, Fast and Slow, Kahneman]]N is a summary of the topics covered in the book in reverse order: the two selves, the problems and differences in classical and behavioural economics, and finally the interactions between the two systems of thought.
Notes
The Two Selves
The conflict between the remembering self and the experiencing self lead to poor evaluations. The neglect of duration and the peak-end rules leads to situations like:
- Favouring a brief period of intense joy over a sustained period of moderate happiness.
- Fearing a short period of intense but tolerable suffering rather than a longer period of moderate pain.
- Accepting a long period of mild unpleasantness with a good ending.
- Rejecting a long period of enjoyment with a poor ending.
The remembering self is a construction of System 2 and so struggles to represent time properly. The skewed rules that govern the evaluation of the past are poor guides for decision making because time does matter.
But it doesn’t make sense to completely leave the remembering self and focus only on experience. A theory of well being that ignores what people feel like they want cannot be sustained. On the other hand, a thoery that ignores what actually happens in people’s lives can’t be sustatined either!
Econs and Humans
The key proposition of behavioural economics is that humans are not rational. But what does it mean to be rational?
In everyday usage it means something like:
- Greater deliberation
- More calculation
- Less warmth
For economics and decision theorists, the only test of rationality is consistency. You can be rational and believe in ghosts as long as all of your other beliefs are consistent with a belief in ghosts. Rationality is logical coherence.
Econs are rational, humans are not.
Libertarianism makes sense when you consider humans as rational. Why should the government have any interest in the choices and rights of an individual unless they are harming anybody? In this world, people know what they’re doing. They consider the fact that they might not have enough money for old age (pensions) or expose themselves to addictive substances (banning drugs).
But this is a fantasy. Humans are not consistent. We are susceptible to narrow framing, the inside view, WYSIATI and preference reversals, just to name a few. We don’t make the right choices all the time. Total freedom has the cost of exposing everyone to all the bad choices they might make, and it means that there is no protection against those who deliberately exploit their weaknesses (which wouldn’t be a problem if humans carefully considered all available information).
Libertarian paternalism is the idea that the state and other institutions should be allowed to nudge people into making making decisions that serve their own long-term interests. Automatically joining a pension plan is an example. It has a broad appeal across the political spectrum.
Humans, unlike Econs, need help to make good decisions, and there are informed and unintrusive ways to provide that help.
Two Systems
The main theme of the book has been the interactions between System 1 and System 2, two fictional characters in our head.
We associate with System 2, articulating judgements and choices. But System 2 is lazy. It often rationalizes and endoreses ideas and feelings that were generated by System 1, and System 1 often answers the wrong question.
But all in all, System 1 is incredible. Although it’s responsible for most of what we do wrong, it’s also responsible for most of what we do right. Expert intuition demonstrates how incredible System 1 is.
The problem is that System 1 does not know when its answers are unreliable. Its operative features, WYSIATI, intensity matching and associative coherence, give rise to predictable biases and cognitive illusions such as anchoring, nonregressive predictions and overconfidence. System 1 can’t be easily trained to prevent these – it’s activation is often unconcious and automatic.
What is the solution then? Through providing a vocabularly with which we discuss System 1, like “framing effects” and “cognitive ease”, we can more easily recognise these systematic errors and realise that we’re in a cognitive minefield. Cognitive illusions are difficult to recognise, and especially difficult to recognise when we need them the most.