Thinking, Fast and Slow

The book goes through an aggregate of social psychology from one of the most prominent minds in psychology and behavioral economics. There are a few central themes, the first of which is fast and slow thinking, dubbed as “System 1” and “System 2”; System 1 is fast, intuitive, subconscious, whereas System 2 is slow, deliberate, and requires effort. Interesting things happen when we think we’re using the slow thinking, but are guided by the rather reckless System 1, and this is the first half of the book. The second goes into more behavioral economics, which distinguishes the “Econs”, the theoretical rational agents that always think and behave consistently, and “Humans”, subject to random everyday whims and biases albeit believing themselves to be rational; this was the part that I found most interesting. A final part of the book describes the difference of the experiencing self and remembering self. I would recommend this to anyone interested in decision making and psychology regardless of prior knowledge.

The most important takeaway here is prospect theory. The theory has a few notable tenets, one of which is that we view choices in terms of gains and losses instead of the absolute amounts (as in +100 or -50 instead of absolute value being 1100 and 950). In addition, we’re naturally loss averse, usually valuing losses at 1.5 to 2.5x as much negative as we value the equivalent amount in positive. We also have a bad tendency to overweigh small probabilities, for example being extremely afraid of terrorism despite its minuscule likelihood that should, if we were more rational, warrant a proportionally small worry for the event. Together, these pieces tell a story of how we regularly deviate from rationality, and how we might behave in situations that call for decisions. Although more complex than the standard utility theory that preaches expected value over human emotion, prospect theory creates a convincing picture of how humans make decisions with a practical emphasis as opposed to utility theory’s theoretical emphasis on being mathematically pristine.