This is a gem of a book. Thinking, Fast and Slow is an engaging and valuable guide to the discipline of behavioral economics and the associated psychological models that seek to explain why we as humans process and act on information the way we do. It is the product of Kahneman’s lifetime of work on the field, which earned him a Nobel Prize in economics, and it shows. A book of this caliber doesn’t come out very often.
The book’s merits don’t only rest on Kahneman’s academic pedigree, however. It is possible to be a Nobel-award winning academic and still be terrible at writing anything that isn’t a highly abstracted academic paper. What Kahneman has done here is to expend conscious effort into making the subject engaging and accessible to the everyday reader. I particularly like how he relates the concepts he expounds to his own personal experiences in life and academia, as well as the little vignettes he includes at the end of each chapter to highlight how they might work if people used them in everyday conversation (cf. “This is an availability cascade: a nonevent that is inflated by the media and the public until it fills our TV screens and becomes all anyone is talking about.”) Kahneman’s voice is the voice of a teacher, and it shines through in his work.
I suppose there’s some sort of affective association at work here, however, given that the subject matter lends itself very well to the feeling that one gets from reading the book that there is immense wisdom and self-improvement value to be found within its pages. Kahneman’s authorial voice lends him a mental image of the affable professor who cares most not for his work but for the edification of his students. His book is more than a guide to his work, it seeks to inform readers of the common pitfalls in peoples’ thinking and decision-making processes, and avoid them to seek better life outcomes: wealth, security, happiness. And if that isn’t one definition of wisdom, what is?
Another part of why this book is so valuable is because it lends empirical weight and materiality to our common lived experiences. As we get older we learn to identify cognitive biases in other peoples’ behavior, but often these are vague and not well-formulated. And more often than not we fail to perceive biases in our own thinking. The book takes these intuitions and structures them into easy-to-identify concepts, and in doing so makes them testable and falsifiable. In the book’s own parlance, it takes the vague associations and intuitions that we accrue in System 1 and forces us to take a step back and consider them from a more rigorous System 2 perspective. When these intuitions get legitimized through experimentation into empirically-backed features of human cognition, they become independent concepts that can be employed to test for less intuitive and more surprising hypotheses. One example the book makes is that it was hypothesized that loss aversion – people being more sensitive to a loss than they would be to an equivalent gain – meant that pro golfers would try harder to go for par to avoid a bogey than to try for a birdie, since they would rather not underperform than overperform. This hypothesis was tested – and it validated, or I should say, failed to invalidate, loss aversion. Loss aversion explains other things that are not readily obvious – such as why taxi drivers tend to work shorter hours in the rain than in dry weather, or why inexperienced investors tend to sell well-performing stocks and hold onto poorly performing ones. The true value of formalizing these would-be “common wisdom” intuitions into psychological theory is so that these hidden associations can be tested, which has great utility in public policy and other fields.
In any case, this is a rare must-read. It’s not just a book that makes interesting observations about the world, it is a book that teaches people how to avoid cognitive biases in their everyday decision-making; its lessons backed by sober, tested science. That’s not to say that Kahneman’s theories and models are perfect; he himself admits that there continue to be things that his models cannot explain properly or fail to predict. But the book itself makes a good case for being the first step in the codification of that nebulous concept called ‘wisdom’.
I give this book: 5 out of 5 overconfident stock market predictions
+ Accessible, readable, engaging
+ Tremendous self-improvement value
+ Good summary of Daniel Kahneman’s tremendous oeuvre
– Not completely consistent; the last few chapters could be a little more developed
– Chapters on prospect theory may be a bit heavy for non-economics majors
– Some thought experiments require a bit of puzzling to understand, especially for people without prior exposure to behavioral economics