THINKING,

FAST AND SLOW

Daniel Kahneman
Notes

Two distinct ways of thinking; one is instinctive, fast and biased (System 1), the other is rational
(most of the times), lazy and slow (System 2).


System 1

Operates automatically, no sense of voluntary control
Cognitive ease is created as a result of priming, repeated experience, clear display and
good mood; System 1 links cognitive ease to illusions of truth, pleasant feelings and
reduced vigilance
Neglects ambiguity, suppresses doubt e.g. mind automatically interprets A13C as ABC and
12B14 as 121314; it is System 2s task to identify the ambiguity, and to disbelieve
System 1 has more influence on behavior when System 2 is busy; in other words, the
depletion of System 2s resources makes our behavior more susceptible to concede to
System 1s intuitive biases
Priming phenomena arise in System 1 and you have no conscious access to them
Mere exposure to a stimulus creates sense of familiarity and cognitive ease Why? Survival
instincts lead humans to be wary of unknowns; however, mere exposure effect occurs
because the repeated exposure of a stimulus is followed by nothing bad; such a stimulus will
eventually become a safety signal and safety is good
Adopts a simplistic view of the world by exaggerating emotional consistency (halo effect)
ugly basketball players are likely to be bad players, and a nice neighbor is also likely to be
generous; the student whose first answer was good is also likely to write a good second
answer
WYSIATI [What You See Is All There Is] System 1 focuses on existing evidence; this leads to
biased views due to overconfidence (the smaller the evidence, the more coherent the story
created by System 1 and thus the higher the confidence in that story), framing of the
argument (a statement of 90% fat-free feels more attractive that 10% fat), and base-rate
neglect (associative machinery is quick to dish out judgments based on steretypes, or basic
assessments, without considering the base-rate or the probability based on relative
population sizes)
System 1 represents categories by a prototype; hence it deals well with averages but poorly
with sums
Sometimes substitutes an easier question for a difficult one
Anchoring biases us due to priming



System 2

Extremely lazy for some people; individuals who uncritically follow their intuitions about
puzzles are also prone to accept other suggestions from System 1 in particular, they are
impatient, impulsive and keen to receive immediate gratification
System 2 has limited capacity - the response to mental overload is selective and precise:
System 2 protects the most important activity, so it receives the attention it needs. As you
become more skilled at a task, its demand for energy diminishes, leaving more capacity for
other cognitive tasks
Cognitive effort as well as self-control results in ego depletion; those who rank highly on self-
control in young age are likely to display higher cognitive effort and intelligence later in their
lives
o Ego depletion can be reversed by ingesting glucose; the nervous system consumes
more glucose than other parts of the body, especially due to effortful mental effort

being tired and hungry (ego depletion) leads to less critical thinking and worse
decisions; it also reduces self-control, leading to higher likelihood of people making
selfish choices, using sexist language and making superficial judgments in social
situations
Cognitive effort requires 1. Concentration on the task, and 2. Deliberate control of attention.
Flow is a state of effortless concentration where an individual has to exert no self-control to
maintain focused attention thereby freeing up resources to be directed to the task at hand
Keith Stanovich draws attention to two parts of System 2 (intelligence and rationality)
o First part (intelligence) deals with slow thinking and demanding computation
ability to switch from one task to the other efficiently
o Second part is the ability to think rationally; high intelligence does not make people
immune to biases
Unbelieving is an operation of System 2: there is evidence that people are more likely to be
influenced by empty persuasive messages, such as commercials, when they are tired an
depleted
Affect heuristic things we like have all the benefits and no costs; System 2 acts like an
apologist for the emotions of System 1
System 2 is involved in the adjustment process of getting to the answer once an anchor has
been introduced; the more depleted we are, the less we adjust

Intelligence
Modern tests of working memory require the individual to switch repeatedly between two
demanding tasks, retaining the results of one operation while performing the other. People who do
well on these tests tend to do well on tests of general intelligence.

Creativity
Creativity is associative memory that works exceptionally well. Good mood, intuition, creativity,
gullibility and increased reliance on System 1 form a cluster. A happy mood loosens the control of
System 2 over performance: when in a good mood, people become more intuitive and more creative.

Causal Thinking
People are prone to applying causal thinking inappropriately, to situations that require statistical
reasoning. Our predilection for causal thinking exposes us to serious mistakes in evaluating the
randomness of truly random events. We mistake randomness for causality and seek explanations for
the results of experiments obtained in small samples, even though the results may be completely
random.

Fooled by Hindsight
Outcomes rather than the processes that were followed (and that may have been swayed by luck or
randomness) are what dominate in hindsight, a bias that rewards reckless risk takers. The punishment
for adverse outcomes fosters risk aversion: because adherence to SOPs is difficult to second-guess,
decision makers who expect to have their decisions scrutinized with hindsight are driven to
bureaucratic solutions and to an extreme reluctance to take risks.

Stock Picking
Skill in evaluating the business prospects of a firm is not sufficient for successful stock trading, where
the key question is whether the information about the firm is already incorporated in the price of the
stock. However, professionals in the industry hold to the psychological illusion that active investing
generates alpha because of the effort involved in stock valuations, as well as financial incentives.

The Illusions of Pundits
As Nassim Taleb pointed out, our tendency to construct and believe coherent narratives of the past
makes it difficult for us to accept the limits of our forecasting ability.