📃The Accompanying PDF
🔖How would I describe this book in 1 sentence?
The most profound study of the flaws of human thinking backed by 40 years of experimental research.
🗺️What was the role of this book in my journey?
I've listened to the audio version in the fall of 2020.
I was deeply impressed by the results of studies and experiments conveyed in the book. Over the course of the next few months, I managed to find implications for some of the principles in my everyday life and on the products I had been working on.
Knowing how my mind works helped me to understand where should I dedicate my focus and which areas to improve.
I started to rely less on System 2, and make everything possible for System 1 to make right decisions.
Nothing in life is as important as you think it is, while you are thinking about it
- A reliable way to make people believe in falsehoods is frequent repetition, because familiarity is not easily distinguished from truth.
- Authoritarian institutions and marketers have always known this fact. But it was psychologists who discovered that you do not have to repeat the entire statement of a fact or idea to make it appear true.
- Question Substitution. When a difficult judgment is required, and a related judgment comes easily to mind, the easy judgment is used instead. People are often are unaware of substitution
- When faced with the estimation that you don't know the solution to, you use whatever are the values that you suspect can be connected to the solution
- A number or statement without its proper context can sound persuasive but it's all due to the framing effect
- People give different answers depending on how they were asked
- Illusion of understanding: we construct narratives to aid in understanding and to make sense of the world. We look for causality where none exists.
- Illusion of validity: pundits, stock pickers and other experts develop an outsized sense of expertise.
- Expert intuition: algorithms, even seemingly primitive ones, applied with discipline often outdo experts.
- Planning fallacy: this fallacy afflicts many professions and stem from plans and forecasts that are unrealistically close to best case; and, do not take into account the actual results of similar projects.
- Optimism and the Entrepreneurial Delusion: most people are overconfident, tend to neglect competitors, and believe they will outperform the average.
- After an event, people often believe that they knew the outcome of the event before it actually happened. This is why it is often referred to as the "I knew it all along" phenomenon
- An event seems to be occurring more frequently the easier you can acquire it from memory
- Confirmation bias — people tend to look up and search the information and facts that prove their opinion
- Persons believing in extrasensory perception (ESP) will keep close track of instances when they were 'thinking about Mom, and then the phone rang and it was her!' Yet they ignore the far more numerous times when (a) they were thinking about Mom and she didn't call and (b) they weren't thinking about Mom and she did call. "They also fail to recognize that if they talk to Mom about every two weeks, their frequency of 'thinking about Mom' will increase near the end of the two-week-interval, thereby increasing the frequency of a 'hit.'
- Judgment and preferences are coherent within categories, but may be incoherent when comparing across categories.
- Several different studies have found that when we rate people as good-looking, we also tend to believe that they have positive personality traits and that they are more intelligent. One study even found that jurors were less likely to believe that attractive people were guilty of criminal behavior.
- People are more likely to choose a sure thing when it's about winning and take a gamble when it's about losing
- Pain from losing is precepted on a much higher scale than pleasure from winning. For example, an average person doesn't feel the same pleasure from winning $1000 as the pain from losing $1,000. The pain of losing could only be compensated by the pleasure of earning 2.2x that amount
- If presented with related base rate information (i.e., general information on prevalence) and specific information (i.e., information pertaining only to a specific case), people tend to ignore the base rate in favor of the individuating information, rather than correctly integrating the two
- There is happiness we experience, and happiness we remember. The happiness we remember is often the happiness that more greatly affects future decisions.
- The duration of the experience has little effect on the memory of the event. The overall rating is determined by the peak intensity of the experience and the end of the experience
The Priming Effect
The Anchoring Effect
Anchoring is a form of priming the mind with an expectation. An example are the questions: “Is the height of the tallest redwood more or less than x feet? What is your best guess about the height of the tallest redwood?” When x was 1200, answers to the second question was 844; when x was 180, the answer was 282.
Anchoring or focalism is a cognitive bias where an individual depends too heavily on an initial piece of information offered (considered to be the "anchor") to make subsequent judgments during decision making. Once the value of this anchor is set, all future negotiations, arguments, estimates, etc. are discussed in relation to the anchor. Information that aligns with the anchor tends to be assimilated toward it, while information that is more dissonant or less related tends to be displaced. This bias occurs when interpreting future information using this anchor to gauge.
Simply said, when faced with the estimation that you don't know the solution to, you use whatever are the values that you suspect can be connected to the solution
Anchoring is often used in marketing & sales to persuade the customers in making a decision towards a product
Regression to the Mean
Sunk Cost Fallacy
WYSIATI (What You See Is All There Is)
Imagine a friend who has grown up in a country that has a problem with aggressive stray dogs. Also imagine that friend has been chased by these dogs, and has several friends who have been bitten by such dogs.
Now even when you bring your friend to a home that has the friendliest, cuddliest dogs in the world, it’s likely that his System 1 will immediately go into freeze, flight or (hopefully not) fight.
What he’s seen is “dogs = terrifying” and it will be very difficult to convince him otherwise. What he’s seen is all there is.
Our brains can confidently form conclusions based on limited evidence. We readily form opinions based on very little information, and then are confident in those opinions.
WYSIATI is one of the reasons why modern politics is so polarizing.
People take the cognitively easy route of listening to others on “their side”, until eventually the only information you’re exposed to is the ones that confirm your existing beliefs.
Because of a narrow frame, people don't know what information it’s missing. They doesn’t consider the global set of possibilities and make decisions accordingly. This can lead to odd situations where you make one set of decisions when considering two cases individually, then a contradictory decision when you consider them jointly.
Judgment and preferences are coherent within categories, but may be incoherent when comparing across categories.
And because of the “what you see is all there is” bias, alternative categories may not be available for you to consider. Much of life is a between-subjects trial – we only get exposed to one major event at a time, and we don’t think to compare across instances.
To challenge the “What You See is All There Is” (WYSIATI) bias, force yourself to ask: “what evidence am I missing? What evidence would make me change my mind?”
Halo effect (sometimes called the halo error) is the tendency for positive impressions of a person, company, brand or product in one area to positively influence one's opinion or feelings in other areas. Halo effect is “the name given to the phenomenon whereby evaluators tend to be influenced by their previous judgments of performance or personality.” The halo effect which is a cognitive bias can possibly prevent someone from accepting a person, a product or a brand based on the idea of an unfounded belief on what is good or bad.
The halo effect is also something referred to as the "physical attractiveness stereotype" and the "what is beautiful is also good" principle.
The halo effect can influence how teachers treat students, but it can also impact how students perceive teachers. In one study, researchers found that when an instructor was viewed as warm and friendly, students also rated them as more attractive, appealing, and likable.
Job applicants are also likely to feel the impact of the halo effect. If a prospective employer views the applicant as attractive or likable, they are more likely to also rate the individual as intelligent, competent, and qualified.
Prospect Theory and Fourfold Pattern
Expected Utility Paradox
Base Rate Neglect
Less is More
Given the description, “Linda is thirty-one years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear demonstrations. Which alternative is more probable?
- Linda is a bank teller.
- Linda is a bank teller and is active in the feminist movement.”
In this case, the additional detail that Linda is “active in the feminist movement” in answer 2., only serves to make the probability lower, since it imposes more constraints. But, because of the accompanying narrative, we like the second option, even though it is less likely. This is why Less is More.
Duration Neglect & Peak-end Rule
Duration neglect is the psychological principle that the length of an experience has little effect on the memory of that event. This factor affects how remember pain and joy.
There is happiness we experience, and happiness we remember. The happiness we remember is often the happiness that more greatly affects future decisions.
Daniel Kahneman presents two selves:
- The experiencing self: the person who feels pleasure and pain, moment to moment. This experienced utility would best be assessed by measuring happiness over time, then summing the total happiness felt over time. (In calculus terms, this is integrating the area under the curve.)
- The remembering self: the person who reflects on past experiences and evaluates it overall.
The remembering self factors heavily in our thinking. After a moment has passed, only the remembering self exists when thinking about our past lives. The remembering self is often the one making future decisions.
But the remembering self evaluates differently from the experiencing self in two critical ways:
- Duration neglect: The duration of the experience has little effect on the memory of the event.
- Peak-end rule: The overall rating is determined by the peak intensity of the experience and the end of the experience. It does not care much about the averages throughout the experience.
Both effects operate in classic System 1 style: by averages and norms, not by sums.
This leads to preferences that the experiencing self would find odd, and show that we cannot trust our preferences to reflect our interests.
Duration Neglect Experiment
In the ice water experiment, participants were asked to stick their hand in cold water, then to evaluate their experience. Participants stuck their hand in cold water in two episodes: 1) a short episode: 60 seconds in 14°C water, and 2) a long episode: 60 seconds in 14°C, plus an additional 30 seconds, during which the temperature increased to 15°C. They were then asked which they would repeat for a third trial.
The experiencing self would clearly consider the long episode worse—you’re suffering for more time. But the longer episode had a more pleasant end.
Counter-intuitively, 80% of participants preferred the long episode, thus, in Kahneman’s view, suffering “30 seconds of needless pain.” They picked the option they liked more.
Oddly, people would prescribe the shorter episode for others, since they care about the experiencing self of others. But when thinking about themselves, they care more about the remembering self.
- Simplify the work of your system 2 by using automations
- Utilize Cognitive Ease in designing user interfaces
- Do not ask people difficult questions. Expect people answer difficult questions to those questions to be from different easier questions.
- Be committed to your process to reduce the potential impact of priming effect
- Always name your offer first to establish the Anchoring Effect. All the further negotiations are unlikely to go +-25% of the original Anchor
- Display pricing for your product in comparison to achieve Anchoring Effect and help users determine the real value of your offer
- Make your judgements and decisions not by sole numbers or statements. Make decisions based on numbers or statement in context. Be cautious of the Framing Effect
- Avoid sunken costs fallacy. Ignore the amount of past efforts when assessing the future perspectives
- Seek for the information to confront your opinion rather than confirm it
- Ask yourself "What evidence am I missing?" rather than "What evidence do I have?".
- Pay attention to the sample size of the analysis. Do not fall victim to the law of small numbers
- To make the experience positively memorable, focus on leaving the last impression positive
✍️Notes & The Problems From The Book
Bat and Ball Problem
Answer: $0.05, not $0.10 🙂
All Roses Are Flowers
Is the syllogism correct?
- All roses are flowers.
- Some flowers fade quickly.
- Therefore, some roses fade quickly
Answer: No. There is no association between roses and fading in the question
“Is the height of the tallest redwood more or less than x feet? What is your best guess about the height of the tallest redwood?” When x was 1200, answers to the second question was 844; when x was 180, the answer was 282.
Person Reading In A Subway
“you see a person reading The New York Times on the subway. Which of the following is a better bet about the reading stranger? 1) She has a PhD. 2) She does not have a college degree.”
Answer: 2. Number of PhDs is much lower than number of people without college degree
“Linda is thirty-one years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear demonstrations. Which alternative is more probable?
- Linda is a bank teller.
- Linda is a bank teller and is active in the feminist movement.”
Answer: 1 has more probability. 2 is a subset of 1
“A cab was involved in a hit-and-run accident at night. Two cab companies, the Green and the Blue, operate in the city.
- 85% of the cabs in the city are Green and 15% are Blue.
- A witness identified the cab as Blue. The court tested the reliability of the witness under the circumstances that existed on the night of the accident and concluded that the witness correctly identified each one of the two colors 80% of the time and failed 20% of the time.
What is the probability that the cab involved in the accident was Blue rather than Green?”
A lot of people ignore the first fact, which defines the base rate of Green and Blue cabs.
A = Cab is blue, B = Cab is identified as blue; therefore, ⌐A = Cab is green, ⌐B = Cab is identified as green. So, we have:
P(A) = 0.15, P(⌐A) = 0.85, P(B|A) = 0.8, P(⌐B|⌐A) = 0.8, P(B|⌐A)= 0.2, P(⌐B|A) = 0.2
Thus, we want to know, P(A|B) = P(B|A)*P(A)/P(B), i.e., the probability that the cab was blue rather than green (and mistakenly identified).
And, we know from the Theorem of Total Probability that P(B) = P(B|A)*P(A) + P(B|⌐A)*P*(⌐A). Therefore, substituting, we get:
0.8*0.15/[0.8*0.15 + 0.2 *0.85] = 0.41, or 41%.
“Consider two car owners who seek to reduce their costs:
- Adam switches from a gas-guzzler of 12 mpg to a slightly less voracious guzzler that runs at 14 mpg.
- The environmentally virtuous Beth switches from a 30 mpg car to one that runs at 40 mpg.
Suppose both drivers travel equal distances over a year. Who will save more gas by switching?
You almost certainly share the widespread intuition that Beth’s action is more significant than Adam’s: she reduced mpg by 10 miles rather than 2, and by a third (from 30 to 40) rather than a sixth (from 12 to 14). Now engage your System 2 and work it out. If the two car owners both drive 10,000 miles, Adam will reduce his consumption from a scandalous 833 gallons to a still shocking 714 gallons, for a saving of 119 gallons. Beth’s use of fuel will drop from 333 gallons to 250, saving only 83 gallons. The mpg frame is wrong, and it should be replaced by the gallons-per-mile frame (or liters-per–100 kilometers, which is used in most other countries).