The best-selling book, Thinking, fast and slow, by Daniel Kahneman, a psychologist and Nobel laureate in economics, is a summary of his research, which he has been working on for decades with Amos Torsky.
Introducing the book Thinking, Fast and Slow by Daniel Kahneman
This book consists of three parts of his work process: basic works, ie cognitive orientations, then vision theory and then research in the field of happiness. The main focus of the book is the dichotomy between the state of thought: the two systems are slower, more voluntary, and more logical, while the system is one that is fast, instinctive, and emotional.
This book traces the cognitive biases associated with any kind of thinking that begins with Kahneman’s own research on hatred of loss.
This book, backed by decades of academic research, shows that individuals, by changing the framework of questions and replacing simpler questions, are in fact over-emphasizing human judgment.
By describing the functioning of the two systems, Kahneman tries to show when we can trust our intuitions in life and business decisions and when we can avoid them, and how we can identify mental biases by recognizing them. We can avoid mistakes.
The book won the National Academy of Sciences Best Book Award and the Los Angeles Times Book Award and was selected by the New York Times Book Critics as one of the ten books of 2011. Introducing Kahneman: Kahneman shows how human judgments can provide shortcuts that systematically deviate from the basic principles of probability.
Prior to Kahneman’s work, economists believed that manpower, under the influence of self-interest motives, made rational decisions.
Hint: The old theory of economics states that investors behave quite rationally and try to maximize their wealth over time by using information and calculating the probabilities.
In his study of the psychological factors that influence investor choices, Daniel Kahneman paints a world that differs greatly from the model of complete rationality of classical economics. The above is an overview of the thoughts and ideas of Daniel Kahneman, Professor of Economics at Berkeley University, winner of the 2002 Nobel Prize in Economics.
Daniel Kahneman received his bachelor’s degree in psychology and mathematics from the Hebrew University of Jerusalem in 1954, then enlisted in the Israeli army.
A year later, he was transferred to the Army Psychology Department as a platoon and was assigned the task of evaluating the training officer candidates. It was here that he encountered the first cases of misconduct (Pressman, 2006, p. 293). After leaving the army in 1956, Kahneman decided to pursue a doctorate in psychology.
After receiving a scholarship, he entered the University of California, Berkeley in 1958. His training course was very anthological. Along with psychology, he studied philosophy with Wittgenstein. Kahneman graduated in 1961 and returned to teach at the Hebrew University of Jerusalem.
He has been awarded the Nobel Prize for his application of psychological insights in economics, especially in relation to human judgment and decision-making under conditions of uncertainty.
Kahneman shows how human judgment can provide shortcuts for human beings to systematically deviate from the basic principles of probability. Prior to Kahneman’s theory, economists believed that manpower, under the influence of self-interest motives, made rational decisions.
He challenged this accepted model, showing that people’s behavior is further determined by psychological motivations, and that these motivations form important economic factors. Kahneman taught the application of psychology to real-world problems in 1968 and 1969 at the graduate level.
He asked Amos Torsky, a young colleague at the university, to speak in class about human judgment and decision-making, two topics that Torski was researching.
Thus began a long and fruitful collaboration between the two. Most of Kahneman’s important ideas were developed by Torsky, and many of his important articles were co-authored with Torsky. Together, they studied, documented, and explained many of the biases in people’s behavior when making decisions. Kahneman left the Occupied Territories in 1978 and went to the University of British Columbia.
Eight years later, he returned to Berkeley. Kahneman moved to Preston University in 1993 to get closer to his friends and relatives in the Occupied Territories.
Kahneman would probably have won the Nobel Prize in 2002 if he had not died of cancer in 1996 if he had not died of cancer in 1996, because of his pioneering work in behavioral and experimental economics (with Verne Smith doing similar work). Kahneman has been teaching at Princeton University since 1993 (econlib.org).
Economic Theories: Kahneman won the Nobel Prize in Economics in 2002 with Vernon Smith, Professor of Economics and Law at George Mason University.
The Swedish Academy of Dreaming Sciences said in a statement that Kahneman had been awarded the Nobel Prize for his use of psychological insights in economics, especially in relation to human judgment and decision-making under uncertainty.
Kahneman shows how human judgments may provide shortcuts that systematically deviate from the basic principles of probability.
Prior to Kahneman’s work, economists believed that manpower, under the influence of self-interest motives, made rational decisions.
Kahneman challenged this accepted model, showing that people’s behavior is determined by more psychological motivations, and that these motivations constitute important economic factors. The study of psychological factors that influence investors’ choices paints a world that is very different from the rational model of classical economic thought.
Evidence that supports the impact of ongoing judgments on investors has cast doubt on labor market theory. The old theory of economics states that investors behave quite rationally and try to maximize their wealth over time by using information and calculating probabilities.
This theory considers the possible mistakes of investors as accidental and as a result has no effect on the price of assets. And because prices are always equilibrium prices, there are no speculative benefits. Therefore, all assets are optimally priced at all times.
The point that Kahneman points out is that classical neo-theory is incomplete in describing real-world behavior. If brokerage is meaningless, why are so many investors queuing up to buy what others want to sell? And if all assets are optimally priced, why are stocks consistently more profitable than bonds?
Kahneman’s answer to these problems is that investors behave only to a certain extent rationally. Behavioral researchers have identified behavioral patterns that lead to errors in investment decisions.
These errors include: Excessive confidence: Investors tend to exaggerate their ability to predict market trends.
Mentality formation: Investors often base their decisions on artificial distinctions. For example, they may treat the benefits of investing as “house mony” and take a higher risk for them than their personal money.
This may lead to a reduction in average returns. Risk aversion: Investors are more sensitive to losses than to gains. Kahneman: “Fast and Slow Thinking” In this book, he shows that the process of thinking consists of two stages, the first stage, which he calls fast thinking, is unconscious, effortless and intuitive.
And the second stage, which he calls slow thinking, is laborious, arising from reasoning and inference, and spontaneity. We all have the experience of saying, doing, or making a decision that we later regret. In this book, Kahneman shows why this happens and how it can be controlled.
In general, Kahneman, in this book, as throughout his life, tries to analyze the mental errors of the human decision-making system. Belief in the Law of Small Numbers, Psychological Bulletin, in collaboration with Amos Torsky, Prediction in Psychology, Psychological Critique, in collaboration with Amos Torsky, “Choices and Judgments” in Judging in Uncertainty: Initiatives and Prejudices, ed.
Daniel Kahneman, Paul Slovik, and Amos Torsky, New York, Cambridge University Press, in collaboration with Amos Torsky, American Psychologist, Choices, Values, and Forms, in collaboration with Amos Torsky, “Fairness as a Limit to Profit” Market entitlement Critique of American Economists, in collaboration with Richard Thaler and J.-Kent.
“New Challenges of Rational Hypotheses” “Reinstatement: Character Change in the Witness Tutorial” in Initiatives and Prejudices: The Psychology of Tutorial Judgment, ed. Gilovich, Griffin, and Daniel Kahneman, New York, Cambridge University Press, with S.C. Frederick Conclusion: By using perceptual psychology insights into the psychological processes of answering questions, forming judgments, and choices, Daniel Kahneman has made a significant contribution to a better understanding of how people make economic decisions. Kahneman has been involved in other areas of behavioral economics.
About the book Fast and Slow Thinking by Daniel Kahneman
The book Fast and Slow Thinking shows you how two systems in your brain are constantly fighting over control of your behavior and actions.
This book shows you where you can and trust your sense of courage and how you can act with a more conscious mindset and make better decisions.
“Although these two systems seem to be well-designed to cope with the world, they do create problems,” Kahneman writes.
This is because System 1 starts when the use of System 2 is more appropriate, or in other words, our reliable insights can lead us to the wrong answers and wrong conclusions.
In his book, Kahneman states that humans are essentially irrational beings, prone to erroneous reasoning.
The book of fast and slow thinking consists of five sections which are presented in the form of 38 chapters. These five chapters are:
Innovative biases and situations
Many may not consider this book as a book for leisure, but Kahneman has succeeded in making it very easy to read and understand. So even if you do not have previous knowledge of psychology or economics, you can easily read this book.
The ideas presented in the book Think Fast and Slow
Your brain has two systems: System 1 (fast, intuitive) and System 2 (slow, analytical).
Cognitive ease: Your brain wants to take a path with the least resistance in solving problems.
Question substitution: When faced with a difficult question, we answer the question that is cognitively easier.
What you see is all that exists.
Framework and architecture of choice: Your opinion can change depending on how you are asked the question.
We hate the idea of ”losing” what we have now.
Book Summary Think fast and slow
Fast and slow thinking introduces you to two active systems in your brain that are constantly fighting over control of your behavior and actions.
This book teaches you many ways in which you can identify the factors that lead to errors in your memory, judgment, and decision making, and learn how to deal with them.
Here are three lessons you can learn from this book:
Lesson 1: Your behavior is determined by two systems in your mind – one conscious and the other automatic.
Kahneman names the two systems of mind as follows.
System 1: is automatic and impulsive.
This is a system that you use when you rush to the train and instinctively turn towards the door, which makes you eat the whole package of chips when you sit in front of the TV and want to eat a small bowl of chips.
System 1 is a remnant of our past and is crucial to our survival. Don’t you think that when a car beeps, it is quite useful to step past it without thinking?
System 2 is very alert, aware and considerate.
This system helps you to have control and be able to intentionally focus your attention. This system works when you meet a friend and try to find him or her in a large crowd, helping you remember his or her appearance and filtering out other people.
System 2 is one of the newest parts added to our brain and is only a few thousand years old. This is what helps us succeed in today’s world, where our priorities have shifted from providing food and shelter to earning money, supporting family, and making complex decisions.
However, these two systems do not work in turn or together. They often fight over who is responsible, and this conflict determines how you act and behave.
Clay 2: Your brain is lazy and this causes you to make mental mistakes.
Here is a simple example to show the impact of the involvement of these two systems on your life, this issue is called baseball bat and ball.
A baseball bat and a ball cost $ 1.10. The price of wood is $ 1 more than a ball. What is the price of the ball?
You have one second to think about the answer
If your immediate answer is $ 0.10, I’m sorry to say that your mind system 1 has deceived you.
Let’s look at this mathematically.
If you think about it for a minute or two, you will see that the price of the ball should be $ 0.05. If the price of wood was $ 1 more than the ball, it would be $ 1.05, which would be $ 1.10 for the ball.
It’s attractive, right? What happened?
When System 1 encounters a difficult problem that it cannot resolve, it calls System 2 to perform operations to work on the details.
But sometimes your brain understands problems more easily than they really are. System 1 thinks it can do it, if it really can’t, and ultimately causes you to make a mistake.
Why does your brain do this? Just like creating habits, it wants to save energy. The law of least effort states that your brain uses the least amount of energy for whatever it can do.
So when it looks like System 1 can handle issues, it does not activate System 2. In this case, it forces you not to use your full IQ. So the brain limits our intelligence to being lazy.
Lesson 3: When making money decisions, leave your feelings at home.
Even if Milton Friedman’s research on economics lays the foundation for today’s work in this area, we end up with the fact that the economic man (that is, a man or woman who acts only on rational thought and was first introduced by John Stuart Mill (introduced) bears no resemblance to what we do in everyday life.
Consider these two scenarios:
You will be given $ 1,000. You can then choose between receiving a prize, a fixed $ 500 or gambling 50% of your money to win another $ 1,000.
You will be given $ 2,000. In this case, you can choose between losing $ 500 a fixed amount, or gambling on 50% of your money with the possibility of losing $ 1,000.
In each of these scenarios, which mode do you choose?
If you’re like most people, you would rather get a fixed $ 500 in Scenario 1, but gamble in Scenario 2. However, the probability of receiving the final amount of $ 1,000, $ 1,500 or $ 2,000 is exactly the same in both scenarios.
The reason for this is the aversion to loss. We are more afraid to lose what we have now, to be eager to get more.
We also understand value based on reference points. Starting at $ 2,000 makes you think you’re in a better position to start and you want to protect it.
Finally, the more money we have, the less sensitive we will be to it (the so-called principle of sensitivity reduction). Losing $ 500 when you have $ 2,000 seems like less than gaining $ 500 when you have $ 1,000. So you are more likely to take a chance.
Watch out for these cases. Just knowing that your emotions are trying to confuse you when talking about money can help you make better decisions. Try to consider statistics, probabilities, and act on them when luck is in your favor.
Do not let emotions get in the way of something unrelated to them. Rule # 1 for being a good poker player is to “leave your feelings at home”.
Excerpts from the text of the book Think fast and slow
A reliable way for people to believe a lie is to repeat it over and over again, because familiarity with a subject is not easily discernible from the truth. Authoritarian institutions and marketers have always known this fact. ”
“Our comforting belief that the world is rational is based on a secure foundation, our almost unlimited ability to ignore our own ignorance.”
“Intelligence is not just the ability to reason. Intelligence is the ability to find relevant topics in memory and expand attention if necessary. ”
“Disgusting psychologist Paul Rosin has observed that a beetle completely destroys the charm of a bowl of cherries, but a cherry has no effect on a bowl of beetles.”
“If you care about looking believable and intelligent, do not use complicated language when you can express yourself in simpler language.”
“The idea that the future is unpredictable is being undermined every day by simply explaining the past.”
“Money does not buy you happiness, but lack of money will certainly bring you misery.”
“It sounds weird, I remember myself and my experience, but the person I lived with seems like a stranger to me.”
The general rule of “minimum effort” applies to cognitive as well as physical actions. The law states that if there are several ways to achieve the same goal, people will eventually be attracted to the policy with the least action. In action economics, effort is a cost, and skill acquisition is driven by balancing benefits and costs. Laziness lies in the depths of our nature. ”
“We tend to overestimate what we know about the world and underestimate the role of chance in events.”
“I have always believed that scientific research is another area in which some kind of optimism is essential for success.
2- Introducing the book Thinking, fast and slow in Aparat