Thinking, Fast and Slow. 38 Thinking About Live

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Well, well, well, we came to the last chapter of the book (Only the conclusions chapter left). I personally have to say that this book has taught me what mental depletion means. In a practical way.

The chapter begins bringing us hope. It begins with a chart about marriage happiness and, for a moment, I thought that we will be given behavioral based marital advice. But not, the chart is used only to illustrate theoretical points already presented in the book, basically that we substitute particular thoughts for a general evaluation when considering our general satisfaction with life. That married and non married people are similarly happy. It is simply that recently married people “think” that they are happier.

This is such an weird way of thinking that Kahneman himself begins to realize it and talks about a “hybrid approach”. What do you exactly mean by “someone thinks that he is happy but he is not”? I understand the mechanical definition of it but it still smells weird. Perceived satisfaction with life, which can be relative to our goals, character, biases, etc, is a very real reality in our minds.

From this point on, we talk about happiness. First we are told that is genetically based. That there are people happier than others in the same circumstances. We all new that.

Then we center in the focusing illusion and its part in the now well known limitations that we humans have in make predictions about our future emotional states. This is a real source of disappointment and incorrect planning in life and it should be taken into account very seriously. Avoiding or weakening the power of “miswanting” is something we should work at in our lives.

However to go to a guy with a colostomy who declares that he would do everything to get rid of it and try to convince him, using actual experience tests of his life, that he is not at all unhappy, is going to prove complicated.

And since this is the last chapter I will review: Mister Kanheman, how could you write such a BORING book with so many interesting things to say is something that future generations will study in humanities departments.

 

Thinking, Fast and Slow. 35 Two Selves

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This chapter presents a curious bias. Our memories of past experiences do not correspond exactly to what we actually were experiencing while living them but are essentially focused on the the maximal intensities of pain/pleasure and the final moments of the experience. The total duration is neglected. The result of this is a contradiction between the self reported level of pain/pleasure when currently undergoing the experience and the memory that we have of it afterwards.

And this has a very powerful consequence. Since we will be making future decisions based on our memories of past events (we do not have any other information to resort to), in the case of discrepancies between the “experienced” and the “remembered”, we are going to take erroneous decisions. That is, we will choose options that will provide less pleasure/more pain than the alternatives. Take that, homo economicous!

Isn’t it funny?

Thinking, Fast and Slow. 34 Frames and Reality

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We are presented here with another bias, the Frame Bias. The author also uses this chapter, I guess that by no other reason than this being the last chapter of part 4, to defend the existence of humans as a different species from Econs. The chapter ends up with a sort of bitter complain because economics is not accepting the truth coming from the behavioral psychology fast enough.

This is one of my main caveats about this book. When reading it, it is good advice to separate very carefully two kind of insights. On one side, there are genuinely new and helpful ideas that help us to know ourselves better and than can help us to avoid costly mistakes in life (at least in theory). On the other side, there is a lot in it that only makes sense as a rebuttal of a set of outlandish ideas of economists living in another universe. It doesn’t interest me at all if it is not true, as mainstream economists believe, that cows are spherical. Let’s take a good book on marketing and I suspect (I don’t know the field) that there will be much more information and fun about real human economic behavior than here. This is a book about a fight between scholars for respect and prestige, written in scholar language and I am happy that we are finally nearing the end.

About the frame bias, this is something we all intuitively know. We respond differently to equal or very similar questions depending on the way they are presented to us. In the chapter, some interesting examples are explained, although I don’t understand the miles per gallon story. Beth consumes less petrol than Adam, makes a move to consume even less with a reduction of 25%. Adam consumes a lot, makes a reduction of only 14% and ends up consuming more than twice what Beth consumed before the correction. In what possible sense Adam action is more significant than Beth’s? Because the absolute amount of petrol saved is bigger?

Thinking, Fast and Slow. 32 Keeping Score

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Money is important but not per se but because of its role as a proxy for feelings of accomplishment. Behavior in real humans is not dictated by rational calculations of gains and loses but for the pursue of emotional satisfaction. And emotions have their particularities and are sometimes coincident with the mythical rational man and sometimes not.

In this chapter we read about some psychological traits that are everywhere and which are very relevant in everyday life and that are quite well known. We are talking about the “sunken cost” effect that prevents you from stop loosing time and money in bad projects. We have the “disposition effect” that forces you to sell good performing investments and retain the losers. We have an asymmetry about the regret we feel when our actions had bad consequences in opposition to how we feel when our omissions had bad consequences. We don’t feel so much pain when we are bad after following the norm compared to what we feel when we are bad after braking the norm.

That’s how we are and if it is difficult to overcome this feelings oneself, to try to fight them in the people around when discussing joint actions that affect you is impossible. And that brings us to the interesting discussion that closes the chapter. These all are biases that decrease our overall practical and financial success. Sometimes they can seriously damage our health and life expectancy (we are over medicated and over treated because of this biases). However, it may be simply impossible to fight them. We hate losing money in a transaction in the same way that we like sugar. It is something physiological. You can’t help it. Maybe you just have to accept it and try to optimize your emotional well-being even knowing that you are harming your portfolio, wealth and health.

And that reminds me that I have always defended it as the most important argument in favor of having kids: it is what everybody does. If when you are old you discover that you made a mistake doing what everybody does, you are going to overcome it and be quite happy nevertheless. However, if your mistake was going against the norm, you are going to suffer strongly.

Thinking, Fast and Slow. 30. Rare Events

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Well, here we are again dealing again with a real bias. And by that I mean a psychological characteristic of humans that provokes decisions that can be harming to themselves. We are talking here about the tendency to overestimate and overweight very unlikely events.

This is a natural tendency difficult to overcome even when we are perfectly conscious of its presence and of the absurdity of our behavior. Kahneman explains his experience with buses in Israel but I am sure that everyone of us can come up with similar stories in their private lives.

The central point of the chapter is that this probability insensibility (by overestimating or neglecting) is the result of the general biases of our system 1: cognitive ease, availability bias and confirmatory bias. Particularly, the most important point is the vividness that we attribute to the image of the rare event than we are judging. Events that can be clearly and vividly presented generate a response of our system 1 that contributes to the overweighting of that event. That is the case, for example, of the “denominator neglect”, because system 1 understands cases and individuals much better that percentages and statistics.

This knowledge creates tools for manipulation and deceptiveness. The way how a case is presented has a big influence in generating or not an overreaction to a rare event.

Its interesting the different response of subject studies to what is called here “choice from experience” and “choice from description”. Once again it goes to the question, that we have commented previously, of how much of this problems and biases are real problems in decision making or are artefacts that appear only when a verbal interpretation of the choices mediates in the decision process.

Thinking, Fast and Slow. 28. Bad Events

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Evolution has endowed us with a bigger sensitivity to bad things than to to good ones. That makes perfect sense since avoiding dangers efficiently contributes more to the survival of an individual than taking advantage of opportunities. What is good and what is bad is sometimes hardwired in our nervous system but sometimes is relative to a perceived reference point.

Loss aversion is a particular case of this universal asymmetric sensitivity. We value much more a loss than an equivalent gain. At first sight, this is shared wisdom and should surprise no one. The chapter tries to convey the idea that implications of this phenomenon go much deeper than what can be seen at first sight and offers us several examples.

Two appear to me as the most relevant.

First, it explains the universal resistance to reform, no matter how evident its gains may seem and how deficient the current situation may be. Those few that are going to loose with the change are going to fight much more that those who may end up gaining with it.

Second, it introduces the idea that economic action has to take into account perceived fairness.

This second point came as a revolution in the rational human based economic theory but I suspect that this ideas have been used in marketing and business for centuries. Everybody knows that if you want that those who can pay more to pay more, instead of raising the price for those who have a job, you have to raise the price for everybody and then make discounts for unemployed. The result is the same and you will be loved instead of despised.

Thinking, Fast and Slow. 26. Prospect Theory

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This chapter presents us with a detailed description of prospect theory which should address the deficiencies that, as we saw in chapter 25, the 250 year-old utility theory presented.

Instead of calculating the utility that a certain amount of money represents for a person just putting it in relation with the person’s wealth, prospect theory uses a different approach to predict human preferences. It is based in three principles:

1. Evaluation is relative to a neutral reference point which is not the wealth of the person involved but is a characteristics of the choice presented to it and the expectations of gains and losses that it generates.

2. There is diminishing sensitivities to both losses and gains.

3. Perceived utility is asymmetrical for gains and losses being much bigger for the latter. This is loss aversion and is the basic point of the chapter.

Here comes to my mind Taleb, the story teller, when he explains that if you look at your portfolio once in a year, you see that you are up 5% and you are happy. But if you look everyday, almost half of the days you are losing money and you live a miserable life because the bad feelings that you get are not offset by what you get the days that you are up.

And talking of Taleb the Impaler, the chapter ends with a strange final section where the Kahneman tries somehow to recover the value of utility theory after all the bashing that it has received in the last two chapters. I kind of false modesty, probably, to soften relationships with some colleges. This is something Taleb has never done.

God bless him.