Sunday, July 1, 2012

Thinking, Fast and Slow: Chapters 28, 29 and 30

Nobel Prize recipient Daniel Kahneman authors this book on the behavioural sciences. Combining his own lifelong research with that of many other leaders in the field, he discusses some of the systematic mental glitches we experience that cause us to stray from rationality, often completely unbeknownst to us. Thinking, Fast and Slow is full of illustrative experiments and examples that you can even try on yourself!

Clearly, we hate losses more than we enjoy gains. This asymmetry emanates in many ways in the world around us. Examples range from golf (more effort appears to be put into putts avoiding bogey than those going for birdie), the behaviour of territorial animals, inabilities to simplify the tax code (those with something to lose will fight harder than those with something to gain), and the use of grandfather clauses (where certain groups get to keep the status quo rather than "lose" something).

There is also asymmetry in how we weight various probabilities. When the chance of a positive event goes from 0% to 5%, we prefer it significantly more than the chance of something going from 5% to 10% or 60% to 65%, for example. We also overweight the preference of something going from 95% to 100%. This may be a reason why plaintiffs are willing to settle even a very strong case (i.e. they are paying a premium to go from 95% to certainty).

We are also not good at conceptualizing categories. For example, people judged a disease that kills 1,286 people out of 10,000 as more dangerous than one that kills 24.14%, even though the latter is more dangerous. Our System 1 can grasp 1,286 deaths far more readily than a probability. As such, it takes an active System 2 to analyze the problem correctly.

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