Monday, July 09, 2012

Thinking Fast and Slow by Daniel Kannehman

Kannehman is a giant in the field of economic psychology, and is a proponent that humans are not rational econs, but rather emotionally driven creatures that use a set of heuristics to base our quick judgments. By showing us how these heuristics work, we can start to understand where they are appropriate and where they’re not in a modern world. This gives us the opportunity to make better decisions and lead happier lives. 

What every politician does during the debate
The essence of the intuitive heuristic: when faced with a difficult question, we often answer an easier one instead, usually without noticing the substitution. p12

People who are cognitively busy (performing system 2 tasks) are also more likely to make selfish choices, use sexist language, and make superficial judgements in social situations. The cognitive load loosens system2’s hold on behavior. A few drinks have the same effec, as does a sleepless night... p41

Intuitive errors are normally much more frequent among subjects who ingested less glucose during the test, leading researchers to hypothesize that system2’s draw on energy lessens the degree with which it can deal with error checking of system1. p43

Are you good enough to get into Harvard, MIT or Princeton?
A bat and ball cost $1.10, and the bat costs a $1 more than the ball. How much is the ball?
50% of Harvard, MIT and Princeton students gave the intuitive and incorrect answer. At less selective universities the failure to check was in excess of 80%. p45
The answer is a nickel. 

The printed word, how to make it stick.
If your message is to be printed, use high quality paper to maximize the contrast between characters and the background. If you use color, you’re more likely to be believed if your text is printed in bright blue or red than middling shades of green, yellow or blue. If you care about being thought credible and intelligent, don’t use complex langauge where simpler language will do. Try to make your message memorable. Put them in verse if you can; they will be more likely to be taken as truth (Woes unite foes vs. Woes unite enemies). If you quote a source, choose one with an easy to pronounce name. p64

Want to avoid mistakes, wear glasses to give you blurry vision
Cognitive strain (making system 2 work) from whatever source (like a fuzzy or small font) helps reject incorrect intuitive answers. 90% of students who saw the normal font made at least one mistake in the test, but the proportion dropped to 35% when the font was barely legible. p65

Display advertising works!
When words or images are shown so quickly that observers are not aware of having seen them, they still end up liking the words or pictures that were presented more frequently. This exposure effect is actually stronger for stimuli that the individual never consciously sees. p67

Why? The consequences of repeated exposures benefit the organism in its relations to the immediate animate and inanimate envrionment. They allow the organism to distinguish objects and habitats that are safe from those that are not... The link between positive emotion and cognitive ease in System1 has a long evolutionary history.  p67

Happier people are more creative
A happy mood loosens the control of system 2 over performance, people become more intuitive and creative, but less vigilant and more prone to logical errors. p69

The brain is wired for being religious
We percieve the world of objects as essentially separate from the world of minds, making it possible for us to envision soulless bodies and bodiless souls. These two modes of causation make it natural to for us to accept the two central beliefs of many religions: an immaterial divinity is the cause of the physical world, and immortal souls temporarily control our bodies. p77

System 1 doesn’t keep track of the alternatives that it rejects, even the fact that there were alternatives. Conscious doubt, requiring maintenance of incompatible interpretations at the same time demands the mental effort of system 2. p80

Want to avoid quick decisions. Frown.
Frowning increases the vigilance of system2 and reduces the overconfidence and the reliance of system1. p152

There’s one thing you can do when you have doubts about the quality of the evidence: let your judgments of probability stay close to the base rate. p153

Stereotyping may not be statistically wrong, just morally frowned upon.
Stereotyping can improve the accuracy of judgment in some contexts. The social norm against stereotyping has been highly benefical in creating a more civilized and equal society, but it is important to remember that neglecting valid stereotypes inevitably results in suboptimal judgments. Resistance of stereotyping is laudable, but the simplistic idea that the resistance is costless is wrong. The costs are worth paying to achieve a better society, but denying that costs exist is not scientifically defensible. p169

Teaching with facts and statistics makes little impact
Even when students are made aware of the base rate explicitly do they learn the results in a way that changes their thinking? The answer is straightforward: they learn nothing at all! Their predictions are the same as those who are not given the base rate information... For teachers of psychology the implications of this study are disheartening. When we teach our students about the behavior of people in this experiment we expect them to learn something they had not known before; we wish to change how they think. This goal was not accomplished and there’s no reason to believe that the results would have been different if they had chosen another surprising psychological experiment. Indeed, similar findings have been found. p173

You must surprise them with a specific case (story)
To teach students any psychology you must surprise. But which surprise will do? When presented with a surprising statistical fact, they learn nothing at all. But when presented with a surprising individual case the immediately make the generalization and incorporate that into their thinking. p174

How to think slowly...
1. Start with the base rate or an estimate of it
2. Determine your guess that matches your intuitive impression of the evidence
3. Estimate the correlation between your evidence and the thing metric you’re guessing.
4. If the correlation is 30%, move 30% of the distance from the base rate to your intuitive guess. p190

The Explanatory stories that people find compelling are simple; are
concrete rather than abstract; assign a larger role to talent,
stupidity and intentions than to luck; and focus on a few striking
events that happened rather than on the countless events that failed
to happen. p199

In a well ordered and predictable world, the correlation would be
perfect and the stronger CEO would be found to lead the more
successful firm in 100% of the pairs. If the relative success of
similar firms was determined entirely by factors that the CEO doesn't
control (call them luck), you would find the more successful firm led
by the weaker CEO 50% of the time. A correlation of .30 implies that
you would find the stronger CEO leading the stronger firm in about 60%
of the pairs - an improvement of a mere 10% over random guessing,
hardly the grist for the hero worship of CEOs we so often witness.

Most stellar performances regress to the mean
The profitability and stock returns gap between the outstanding firms
and the less successful one from 'Built to Last' shrank to almost
nothing in the period following the study. The average profitability
of the companies identified in the famous 'In search of excellence'
dropped sharply as well within a short time. A study of ''Fortunes
Most Admired Companies" finds that over a 20 year period, the firms
with the worst ratings went on to earn much higher returns than the
most admired firms. p207

History is dominated by randomness
it is hard to think of the history of the 20th century without
bringing in the role of Hitler, Stalin and Mao. But there was a moment
in time, just before an egg was fertilized, when there was a 50/50
chance that the embryo that became Hitler could have been a female.
Compounding the 3 events, there was a 1/8th probability of a 20th
century without any of these three villains, and its impossible to
argue that history would have been the same in their absence. The
fertilization of these 3 eggs had momentous consequences, and it makes
a joke of the idea that long term developments are predictable. p218

Let the computer decide
The number of studies reporting comparisons of clinical and statistical
(algorithmic) predictions has increased to roughly 200, but the score
in the contest has not changed. About 60% have shown significantly
better accuracy for algorithms. The other 40% scored a draw in
accuracy, but a tie is tantamount to a win for the statistical rules,
which are normally less expensive. No exception has been convincingly
documented. p223

If you're serious about hiring the best possible person for the job
this is what you should do.
1. Select a few traits that are pre-reqs for success in the position
(technical skill, engaging personality, reliability, etc.) Don't over
do it, 6 is a good number.
2. Make sure the traits are independent and you can assess them
reliably by asking a few factual questions.
3. Make a list of those questions and for each trait think about how
you will score them on a 1 to 5 scale.
4. To avoid halo effects, you must collect the information on one
trait at a time, scoring each before you move on on the next one.
Don't skip around.
5. Evaluate each candidate by adding up the 6 scores.
6. Firmly resolve that you will hire the person with the highest score
and don't overrule this by intuition. p232

Set goals and strive to achieve them
I have changed my mind about well being. The goals that people set for
themselves are so important to what they do and how they feel about it
that an exclusive focus on experienced well being is not tenable. We
can't hold a concept of well being that ignores what people want. It
is also true that a concept of well being that ignores how people feel
in the moment and only focuses on how they feel about their whole life
is also untenable. We must accept the complexities of a hybrid view,
in which the well being of both selves is considered. p402

How you process time
The central fact of our existence is that time is the ultimate finite
resource, but the remembering self ignores that reality. The neglect
of duration combined with the peak end rule causes a bias that favors
a short period of joy over a long period of moderate happiness. The
mirror image of the same bias makes us fear a short period of intense
pain over a long period of mild unpleasantness but tolerable
suffering. Duration neglect makes us prone to accept mild suffering
because the end will be better, and it favors giving up an opportunity
for a long happy period if it is likely to have a poor ending. p409

Bayes Rule Explained:
Your friend tested positive for a rare disease where only 1 in 600 of
cases sent for testing actually has the disease. The test is fairly
accurate; its likelihood ratio is 25:1, which means the probability
that a person with the disease will test positive is 25 times higher
than a person without the disease. The odds that your friend has the
disease has rise from 1/600 before the test to only 25/600 post the
test, or just 4%. 25 times higher than before, but not a certainty.