A Must-read Book That Will Change How You Make Decisions and Think about Thinking

Change your thinking, change your behavior and make better decisions

In 2011, psychologist Daniel Kahneman published Thinking, Fast and Slow, a book that explained, in astonishing detail yet in terms that an average mortal like myself could understand, his and other scholars’ research on how we think.

Kahneman’s research had earned him the Nobel Prize in Economics in 2002, nine years before he published his popular book.

Wait, what? A psychologist’s work on thinking got him the Nobel in Economics?

Well, yes. As it happens, our decisions, including our economic decisions, are grounded in how we think.

We think, therefore, we problem solve, judge, choose and decide. All these processes lead to how we behave, that is, to what we do or not do.

I might open a savings account and save for retirement (or I might not). I might take the job at the pet store instead of going to college (or do the opposite). I might rent an apartment or take out a mortgage and buy a house (or move into my sister’s basement).

All such choices, added up, affect our lives, society and the whole economy.

Of course, how we think and decide shapes every aspect of our lives, so Kahneman could have won the Nobel in Sociology, Politics, Religion or Marriage. The thing is, these Nobels don’t exist.

Additionally, economics theory used to be based on the premise that all humans make rational economic decisions. Research like Kahneman’s shook up such assumptions and gave birth to the field of behavioral economics.

The shortest summary of “Thinking, Fast and Slow” you’ll ever read

Thinking, Fast and Slow introduces us to two thinking “systems” operating in us humans: System 1 and System 2.

System 1 involves intuition and perception (you know, the five senses and physical feelings). It informs behaviors such as recoiling from a spider, or how a pro tennis player hits the ball.

System 2 is involved in judgments, which are always intentional. Judgments can be intuitive (rooted in System 1 impressions) or based on deliberate reasoning.

By dissecting these systems and how they interact, Kahneman gives us insights into both the sound and the crazy choices we make.

When should you act on intuition?

“The acquisition of skills requires a regular environment, an adequate opportunity to practice, and rapid and unequivocal feedback about the correctness of thoughts and actions. When these conditions are fulfilled, skill eventually develops, and the intuitive judgments and choices that quickly come to mind will mostly be accurate.”

So, your intuitions tend to be valid and you should probably act on them given:

• A regular environment
• Lots of practice
• Fast and accurate feedback

A couple of examples:

• A tennis player has been in a tennis court doing drills and playing tournaments for countless hours over two decades. Every single time he hits the ball, he knows immediately if it made it over the net. Such a player should probably trust his intuition to hold the racket at a specific angle and hit the ball just so.
• A second-grade teacher, Mr. Parker, has taught second graders at the same school for thirteen years. The teacher has responded to thousands of incidents of children disrupting class. When Jackie becomes just a tad disruptive during a lesson, chances are Mr. Parker can trust his intuition that, for this student, the material is too hard.

When all’s said and done, no matter how strongly you “feel it in your bones” that you should do X instead of Y, remember that, as Kahneman puts it,

“The confidence that people have in their intuitions is not a reliable guide to their validity.”

To trust your gut, you must be proficient in the area you’re dealing with.

Should you focus on the exception or the rule?

“People are often reluctant to infer the particular from the general. Often, they tend to infer the general from the particular.”

This, reader, was exactly me when my son Diego was a child. I never doubted we would “cure” his autism, that he would be the exception. So I focused almost exclusively on cures, not on accepting and celebrating who he was at all.

This thinking sometimes gets us to be unprepared for the most likely outcome, which may be a good outcome too. It also leads us to put up with abusive relationships when experience shows that the abuser won’t change.

This is not to say you can’t be the exception. You could of course. But don’t count on it, that’s all.

When should you admit failure and move on? When should you keep going?

Consider this:

“…people who lose suffer more than people who merely fail to gain.”

As a result,

“This is where people who face very bad options take desperate gambles, accepting a high probability of making things worse in exchange for a small hope of avoiding a large loss.”

Take this example: Chris put some of his savings into opening a barbershop. Three months in and he’s operating at a loss. He invests some more into the decor, installing two large screens for customers to watch news and sports. It’s now the fifth month and he still has a way to go to break even.

Have you known someone in Chris’s position? Have you, like me, faced an equivalent situation?

In such scenarios, people will make the craziest decisions. To everyone else it will be clear that they’re stupid and crazy, but not to the person standing to lose.

The desperate person in the deep dark hole may go as far as to mortgage his home or take out a loan from a retired parent even if the chances of turning things around are slim.

It’s an awful situation to be in or behold. Which reminds me of this observation of Kahneman’s:

“…it is much easier to identify a minefield when you observe others wondering into it than when you are about to do so.”

Which worries or fears should guide you?

“People tend to assess the relative importance of issues by the ease with which they are retrieved from memory — and this is largely determined by the extent of coverage in the media.”

In general, don’t base your fears on issues exploited by the media and politicians ever since the invention of media and politics!

Say someone was killed by a shark off the coast of South Carolina and, suddenly, this tragic event is all over the media. A lot of people’s greatest fear about going on vacation to South Carolina that summer may be sharks, even though the risk of getting into a fatal car crash while driving to the vacation spot is a thousand times greater.

But death by shark attack more readily comes to mind than death from a car accident.

Or consider, for instance, that an immigrant shot a lady during a robbery. The event is all over the media, as well as coverage of any past homicide committed by any immigrant over the past 50 years.

Even if the homicide rate among immigrants and non-immigrants is the same, who are more people likely to fear?

As Kahneman points out:

“Fear can also be learned — quite easily, in fact — by words rather than by experience.”

Change your thinking, change your behavior and make better decisions. And when decisions are consequential, this could make all the difference in life, work and health.

This short essay merely scratches the surface of the eye-opening insights in Thinking, Fast and Slow. The book deals with big ideas and is 100% worth reading both because of how fascinating these ideas are and because of their applicability on a personal level.

Thinking, Fast and Slow gives us tools to help us think about our thinking.

Change your thinking, change your behavior and make better decisions. And when decisions are consequential, this could make all the difference in life, work and health.