Thinking Fast & Slow | Summary

 

 “The confidence that individuals have in their beliefs depends mostly on the quality of the story they can tell about what they see, even if they see little.”

• Thinking

  • System 1
    • fast | also known as intuition
  • System 2
    • slow
     
   
  
  
  

• Framing

  • example
    • you have 2 new interviewees
    • which one will you hire?
    • Amit
      • he is Intelligent, Industrious, impulsive, stubborn, critical, envious
    • Sara
      • she is envious, critical, stubborn, impulsive, industrious, intelligent
    • Amit - sounds like he’s hardworking
    • Sara - sounds like she’s difficult to work with
    • they both are described using same words | only the order is changed
  • they both have same qualities
    • yet we see them as different
    • this is System 1 thinking in play
    • System 1
      • fast thinking
      • create meaning quickly
      • make decision with very limited information
      • help us jump to conclusions quickly
      • make sense of partial information
  • System 1 causes
    • common mistakes in thinking

      • overconfidence

        • our decisions are based on the quality of the story we tell our selves to justify them
        • not on facts or rationality

      • framing

        • how information is frames is more influential than the actual information
        

       

      “Intelligence is not only the ability to reason; it is also the ability to find relevant material in memory and to deploy attention when needed.”

       
      

• How to better process data to inform our choices

  • asking right questions
    • data is overwhelming
    • to get best insights → ask the right questions
  • example
    • Bill & Melinda Gates Foundation
      • invested $1.7 Bil in schools
      • They were shown a research - stating “all the best schools in US were small schools”
      • so the investment was done to split schools into smaller units | creation of small schools
    • this made intuitive sense
      • smaller schools → more attention to individual students
  • This was only a portion of the information
    • The Researchers were asking-
      • What were the characteristics of the best-performing schools?
    • Had they asked the reverse questions-
      • they would have realized that the worst performing schools were also small schools
    • They confused correlation with causality
    • Ask better questions
    • Don’t stop asking questions when one of the answer makes intuitive sense
     
   

    “we can be blind to the obvious, and we are also blind to our blindness.” 

 

 

• Optimism vs Overconfidence

  • System1 thinking
    • likes to believe that → the world is tidy, simple and predictable
    • understand the past → make predictions about the future
    • makes an illusion that we can control it
  • Example
    • share market
      • only a set of information is available for everyone to use and decide
      • using the same info → 2 things happen
        • Seller → decides to sell it’s shares
        • Buyer → decides to buy those shares
      • same information = different opinions
      • who is right?
  • We are expected to be confident in our own abilities
  • Optimism is essential to success
    • bold predictions and moves are often rewarded
    • optimism allows us to handle inevitable setbacks we will encounter
    • Be aware →
      • Blind optimism
      • without reflection & learning
      • leads to overconfidence
      • & poor decision making
  • Overconfidence
    • hardest mistake to fix or adjust for in our thinking
    • once born it takes roots into our
      • thinking, forecasts, assumptions, goals & dreams
    • it changes our view of
      • ourselves
      • our abilities
      • & how much control we have over future
    • This is because it’s deeply tied up with our Survival instinct
  • Even if we are average
    • we feel we are special, unique or
    • above average in worst case
  • Key
    • know when optimism → has become → overconfidence
    • PreMortem
      • When making a decision in an organization
        1. gather a group of individuals who are knowledgeable about the decision or field
        2. setup a meeting
        3. ask this question
           1. we are now 1 year into future
           2. we have already executed the plan/decision as it exists right now
           3. but the outcome was a disaster
        4. please write a small paragraph on why that could happen
        5. feel free to use your imagination coming up with probable issues
        6. collect all answers and discuss
        7. dig out all little nuggets of the issues
      • This is REFRAMING the Issue.
      • Changes our focus from
        • what can be gained → to → what could go wrong
      • This has a positive impact on the team
        • it allows them to anticipate criticism, as part of their daily job role
        • so they learn to strengthen their arguments

• Overcome System 1’s Intuitive Impulses

  • example

    • Interview
      • dress well, speak well, read about the company
      • show humility, passion, willingness to work hard
    • these only make the interviewer feel good

  • how to make sure you hire someone good and not just someone who feels good

    1. choose independent traits | that would satisfy the job role
       1. don’t pick more than 6
       2. example → proficiency, loyalty, numeracy, creativity, etc
       3. make sure they are independent of each other
    2. Confirm these traits by asking factual questions
    3. make a list of those question
       1. decide how you will score them | 1-5
       2. decide what answers will get 1 and what answers will get 5
    4. collect & question each trait one by one
       1. collect info about one before going to next
    5. add up the 6 scores
    6. hire the highest scores

  • Research shows this increases the probability of hiring the best candidates

     

    “acquisition of skills requires a regular environment, an adequate opportunity to practice, and rapid and unequivocal feedback about the correctness of thoughts and actions.” 

    
    

• Intuition In Professional Decision-Making

  • There are different types of professional intuition
  • True Expert?
    • someone who has worked, failed and been successful
    • someone who understand the limits of their knowledge
    • environment in which they learned is also important
      • chess have 100k patterns
      • fire fighting - fire burns in 100x patterns
      • but share market can have no predicted patterns
  • intuition can’t become expert
    • without feedback
    • and using that feedback along the journey
     
   
  
  
  
  
  

• Prospect Theory

  • for us losses and gains are valued differently
    • traditionally people believed
      • Gain of Rs. 100 🙂 🙂 | twice as happy
      • Loss of Rs. 50 😟 | when compared to the loss
    • losses impact us more profoundly than making the same amount of gains
  • individuals make decisions based on perceived gains instead of perceived losses
    • We dislike losing > more than we like winning
    • example
      • we buy things we don’t need → just because it’s on sale
      • in our mind we have made a gain and avoided a loss
  • if you are presented with a choice, both equal, will choose the one presented in terms of potential gains
  • Example
    • you are offered
      • Option A | Get Rs.900 right now
      • Option B | a 90% chance of getting Rs.1000
    • Now consider these two
      • Option C | Lose Rs.900 right now
      • Option D | Accept a 90% chance of losing Rs.1000
  • Fear of loss
    • Most people choose
      • Option A → risk averse towards gains
      • Option D → risk seeking towards loses

 

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