This essay delves into the two cognitive systems that govern human decision-making, which Kahneman refers to as Systems 1 and System 2. System 1 operates automatically and quickly, relying on intuition and heuristics, simplified with the acronym WYSIATI… What You See Is All There Is. System 2 is more deliberate and analytical, necessitating effort and conscious thought, and is also characterized by a high level of laziness. Kahneman discusses various cognitive biases and heuristics that influence our judgments and decisions, often leading to errors in reasoning. He covers topics such as prospect theory, anchoring effects, overconfidence, and the framing of decisions. Through a multitude of examples, Kahneman provides valuable insights into the functioning of our minds and how to become more aware of the biases that affect us, as there is no means of preventing them. It is a challenging book to read, but it is eye-opening. Daniel Kahneman, who received the Nobel Memorial Prize in Economic Sciences for his research, died whilst I was reading his book. Rest in Peace.
“The conditions under which rare events are ignored or overweighted are better understood now than they were when prospect theory was formulated. The probability of a rare event will (often, not always) be overestimated because of the confirmatory bias of memory. Thinking about that event, you try to make it true in your mind. A rare event will be overweighted if it specifically attracts attention. Separate attention is effectively guaranteed when prospects are described explicitly (“99% chance to win $1,000, and 1% chance to win nothing”). Obsessive concerns (the bus in Jerusalem), vivid images (the roses), concrete representations (1 of 1,000), and explicit reminders (as in choice from description) all contribute to overweighting. And when there is no overweighting, there will be neglect. When it comes to rare probabilities, our mind is not designed to get things quite right. For the residents of a planet that may be exposed to events no one has yet experienced, this is not good news.”