Thinking, Fast and Slow

Book summary... and (loosely) linking it to watch collecting

Oct 28, 2023

I haven’t done a book summary in ages, so this is long overdue. For the most part, this is a selfish exercise, because doing so helps me sift through a book to summarise the key messages - and this act, helps me embed the messages in my own mind. That said, I received a lot of good feedback from the last one, so I hope you find this useful too!

I’ve been following Professor Daniel Kahneman for over a decade, and his work has always fascinated me… I was working on a summary of a more recent book of his entitled Noise, and then realised how relevant Thinking, Fast and Slow was, so I decided to post this review first. The good news is I therefore have another draft nearly done for the next review, so you won’t wait as long!

In this book, the Nobel Prize winner tackles topics which are both complex and integral to the human mind. As the wiki pages states, the book's main thesis is a differentiation between two modes of thought: “System 1” is fast, instinctive and emotional; “System 2” is slower, more deliberative, and more logical. The books gets you to consider how your mind habitually contradicts itself, distorts data and misleads you. It’s an honest, refreshing take, and Kahneman often illustrates conflicted thinking with examples from his own life. Granted, it can be a slow read at times, but as anyone who has read it will tell you: it is well worth the time.

The “Two Systems” of mental processing

When you have to make sense of something, you simply think about it. To understand how this process of thinking actually happens, consider a model where people apply two cognitive systems.

The first is “System 1” - this is the mental processing which reads emotions and handles automatic skills, such as riding a bicycle or driving a car. System 1 is what takes over our thinking when we comprehend simple statements (e.g., “complete the phrase ‘You never really own a . . .’ ”), instinctively turn to see where a noise is coming from, or grimace when we see grotesque images. System 1 is responsible for creating associated meanings (including stereotypes) rapidly and involuntarily.

“Although System 2 believes itself to be where the action is, the automatic System 1 is the hero of the book.”

The second is “System 2” - this is activated when we focus on specific details, such as doing a tax return or deciding whether 6 or 12 eggs in the supermarket is better value. System 2 applies effort consciously; this applies when we do complicated math problems, try new physical activities or search for a specific person in a crowd. System 2 thinking is slower, but we need it for methodical thinking processes such as formal logic.

“The main function of System 1 is to maintain and update a model of your personal world, which represents what is normal in it.”

At a glance, System 2 might seem like the more valuable system, and System 1 may appear to be rather mechanical and unimportant; the reality is more nuanced. When we think, our mental processes engage in a “division of labour” and constantly interact. We primarily operate with System 1 engaged, where rapid processing is extremely efficient and necessary. Just consider how much your eyes actually see when you look anywhere, and how impossible it would be to process every single input in significant detail. In fact, you may have found yourself reasoning about a task in System 2, but then got tired or distracted and found that you’ve shifted over to System 1 without even realising it. If you have ever found yourself confused by an optical illusion, you have experienced what happens when these two systems are in conflict.

Activation and interaction of these systems

Which system is activated, and in turn, how we think, will depend on how much effort we are able to put in. When we’re doing something easy such as walking from our home to a train station nearby, this is a route which is known, and we would be using using System 1; in such instances, we have a lot of cognitive capacity left for thinking.

If we then decide to run for a train (leaving from the same station) when we might be at risk of missing it, System 2 switches on to maintain this elevated effort. During this run, if we tried to solve a math problem, we’d likely stop running or slow down, because our brains struggle with the additional burden. Studies have shown that intense concentration lowers the body’s glucose levels. If your System 2 is ‘busy’ (such as while running for a train), you’re more likely to stereotype, give in to temptation or consider issues more superficially.1

“People who are ‘cognitively busy’ are...more likely to make selfish choices, use sexist language and make superficial judgments in social situations.”

System 1 is what pushes us to jump to conclusions, or easy answers, so if what appears to be a correct solution appears when we face a challenge, System 1 will default to that answer, even if we get additional information later on which disproves the initial conclusion. System 1 performs rapid “associative activation.” When we pair two words, or a word and an image, our minds will link them and weave a story from these scraps of information.

You may have heard of “priming?” System 1 is exactly what priming relies on. If you see the word “banana” followed by the word “vomit,” your mind creates an instantaneous connection that causes a physical reaction. Similarly, if you are primed and shown the word with food or references to eating, it is more likely you would complete the sequence S-O-?-P as “soup” rather than “soap.”

“A compelling narrative fosters an illusion of inevitability.”

We actually see persuasion tactics which appeal to our System 1 preferences more often than we realise. For simple, memorable information, you may notice a bold font in text, rhyming slogans in advertising and company names which roll off the tongue and are easy to say. Heck, even the story about Rolex rings true here:

He said, “I tried combining the letters of the alphabet in every possible way. This gave me some hundred names, but none of them felt quite right. One morning, while riding on the upper deck of a horse-drawn omnibus along Cheapside in the City of London, a genie whispered ‘Rolex’ in my ear.”
-Hans Wilsdorf

Anyway, such tendencies capture the essence of System 1’s larger function, which is to assemble and maintain our view of the world. System 1 is all about consistency; Seeing a watch boutique going up in flames will stand out in our mind. If we then see another store on fire in the same area later on, System 1 will label it “the area where shops are burning down.”2

Some of the pitfalls we face

System 1 is what makes the world linked and meaningful to us. As a result, when we’re dealing with two discrete facts, System 1 will assume they are connected. It seeks to promote cause-and-effect reasoning, sometimes to our disadvantage; People habitually conflate correlation and causation.

“What you see is all there is” or WYSIATI, is something Kahneman attributes to System 1 as well, and it is extremely influential in colouring our judgement. This is where we take in some data, and System 1 presumes that is the complete and definitive story. By way of example, if all you have to go on is someone’s wrist watch, your System 1 will fill in whatever you don’t know – that’s the “halo effect.” If you saw a guy wearing a Dufour Simplicity, you might assume they are a seasoned watch collector with an extensive collection. Or a more traditional example is where we might see an athlete, and if they are physically attractive, automatically assume they are also quite skillful (despite having no data to support this conclusion).

“When an unpredicted event occurs, we immediately adjust our view of the world to accommodate the surprise.”

We also unconsciously link recent events to our current thinking, even when there is no connection - again, this is because of System 1 and you may know it as “anchoring.” How this works, is for example, you mention the number 200,000 and then ask someone to guess the price of some crazy watch like a brass Journe - this will produce higher estimates than if you mentioned the number 50,000 instead. Another example he uses is mentioning the number 10, and then asking how many African countries belong to the United Nations - this produces lower estimates than if you mentioned the number 65 and asked the very same question.

Then, to make matters worse, System 2 can actually compound our mistakes by finding reasons for us to continue believing answers and solutions we have generated. System 2 is not programmed to dispute what System 1 presents; instead, it is the “endorser” of how System 1 has chosen to categorise the world as we see it.

“Facts that challenge...basic assumptions – and thereby threaten people’s livelihood and self-esteem – are simply not absorbed.”

We have a natural tendency to focus on the content of a message instead of its significance and this affects how accurately we judge things. People always jump on extreme examples to shape their fears and future plans. For example, media coverage of very dramatic but infrequent events like wars, accidents, crime rates and disasters – as opposed to boring but common threats like obesity, heart disease, strokes or asthma – sets the extreme events up as anchors which people use to make insanely inaccurate assessments about the risks they personally might face in their lifetime.

“The idea that the future is unpredictable is undermined every day by the ease with which the past is explained.”

We also tend to reason incorrectly when we fail to recognise “regression to the mean.” This refers to the tendency of results that are extreme by chance on first measurement—i.e. extremely higher or lower than average—to move closer to the average when measured a second time. In other words, over time, everything tends to return to the average, but people create and apply “causal interpretations” to what are, in effect, random events. For example, young watchmakers see the success of Simon Brette, and assume this is something they can easily replicate because they believe they are equally skilled, or better than he is - when in reality his success was a perfect storm of design, timing, and strategy under very specific economic conditions which are unlikely to be replicable anytime soon. Another example Kahneman describes; if a sports player who has a strong debut season subsequently falters in his later years, sports fans will attribute this the decline to any number of spurious reasons – but, in reality, this player was probably just more fortunate in his initial season and the later ones are more accurately reflecting is natural talent!

Distorted reality and irrational optimism

A “narrative fallacy” is our tendency to create simple but flawed stories out of a sequence of facts to try and make sense of the world. I believe the term was coined by Nassim Taleb in The Black Swan where he argues people are constantly fooling themselves by creating oversimplified and incorrect accounts of the past and, of course, believing them to be true. Humans tend to derive meaning from stories which emphasise individual characteristics such as virtue or skill, but foolishly discount the role of luck or other statistical factors. We tend to “focus on a few striking events that happened rather than on the countless events that failed to happen.”

This, in turn, shapes our view of the past and our expectations of the future. Further, due to “hindsight bias,” we distort reality by realigning memories of events to jibe with new information. Unsurprisingly, when telling stories about events we have been involved in, we tend to be overly optimistic and predisposed to overvaluing our own talents relative to those of others. We also give our own knowledge greater weight than it objectively deserves.

Gotta get it right — © U.W. License: CC BY SA 4.0 international

This isn’t news to anyone, but a compelling story is dangerous precisely because it creates an illusion of inevitability which totally undermines the role of luck in most outcomes. Unfortunately for us, our minds prefer a simplistic view of the world because inconsistencies slow down our thought processes and the clarity of our feelings - and we rarely have time to engage in proper thinking to debias our final view of the world.

“We are confident when the story we tell ourselves comes easily to mind, with no contradiction and no competing scenario. But ease and coherence do not guarantee that a belief held with confidence is true.”

Such overwhelming and pervasive optimism is of course useful for the economy because many entrepreneurs and inventors tend to start new businesses all the time, ignoring what may seem like overwhelming odds against them. As Kahneman explains, despite knowing that roughly only a third of enterprises make it to their fifth anniversary, more than 80% of American entrepreneurs rate their ability to beat that statistic as high; a third “said their chance of failing was zero.”

Expertise, risk and bias

Another thing which System 1 influences, is how objectively people assess their own “intuition and validity,” which means that not all experts always provide great counsel. Expertise relies on an individual’s skill, “feedback and practice.” For example, firefighters’ have years of experience in weighing the risks posed by specific types of fires, and in extinguishing those fires; This give them an impressive ability to read a situation intuitively and identify crucial patterns. In the same way, a seasoned watchmaker with decades of experience in both creating and repairing watches, will have more success in diagnosing a problem with your watch, than a plumber who has never opened a watch in his life. No sh*t. Feedback, and practice.

“Most of us view the world as more benign than it really is, our own attributes as more favourable than they truly are, and the goals we adopt as more achievable than they are likely to be.”

As obvious as that may have sounded, the book highlights how we should not always put too much trust in the judgment of experts. In particular, when it relates to fields where challenges vary greatly, where luck determines success, and where too great a gap exists between action and feedback.

For example, people who predict stock values or political contests are prone to fall into this category. This is because System 1 lulls experts with “quick answers to difficult questions,” and in such cases, their intuition may be flawed, but your System 2 is unable to detect those inconsistencies because they are supposedly ‘experts in their field.’

In a watch collecting sense, this might be the equivalent of meeting some big collector who has been collecting for 40 years, and taking their word for it that your watch is faulty for some reason, just because they recall having the exact same problem before. They may well have had a problem, and you may well respect them, but there is also a big chance they have no idea what is wrong with your watch!3

“Organisations that take the word of overconfident experts can expect costly consequences.”

This bit is particularly useful for watch collectors. We are especially prone to unclear thinking when making decisions about risk and value. Most people are “loss averse”: We hate to lose £500 more than we like winning £550. Another thing we suffer from is called the “endowment effect”: When something is ours, even if only for a brief period of time, we overestimate its value relative to the value of other things we don’t own. Homeowners exemplify the endowment effect, often overvaluing their properties. Same goes for watch collectors and their watches!

“Confusing experience with the memory of it is a compelling cognitive illusion.”

If we combine all this with the fact that people misjudge how likely rare events are, or how much they overweight rare events when making decisions, what we observe are the foundations of the modern insurance industry. How we frame risk will shape our evaluation of it.

For example, when we hear a life-saving vaccine has “a 0.001% risk of permanent disability,” our reaction is quite different to what it would be if we hear the same treatment “leaves one of 100,000 individuals disabled.” But wtf? The two are identical!

If we take all these tendencies into account, it is hard to believe any economic theory based on the idea that people are rational. Making good decisions depends on paying attention to where our information comes from, understanding how it is framed, assessing our own confidence about it and gauging the validity of the data sources we have used.

Two “selves,” one mind

We have two selves - the experiencing self, and the remembering self. We have discussed how the two systems interact in our minds, and our two selves also clash over the quality of our experiences.

The experiencing self is the part of us which is living our lives in the moment, and the remembering self is the part which evaluates the experiences we have, draws lessons from them and “makes decisions” about the future.

According to Kahneman, the experiencing self knows only the present moment. The remembering self is a storyteller (“that was a good dinner”; “that was a bad flight”), and it can dictate our actions when we think of the future as an anticipated memory (“that will be a fun road trip”).

For the remembering self, happiness is not cumulative, and the final stages of any event play a critical role in our recollection of the overall quality. Kahneman’s example was when researchers asked subjects to evaluate the life of someone who lived happily to the age of 65, relative to someone else who lived happily up to 65 but was only moderately content for another five years; The subjects rated the first life as more desirable.

“The experiencing self does not have a voice. The remembering self is sometimes wrong, but it is the one that keeps score and governs what we learn from experience, and it is the one that makes decisions.”

Our remembering self’s evaluation of our life story is one part of how we judge whether we are actually happy. We rate our life by standards or goals we set for ourselves. The moment-to-moment assessments of our experiencing self provide the other side of our happiness. These conclusions may conflict because they account for different aspects of reality.

Work benefits and status which affect “general job satisfaction” do not shape people’s everyday moods at work. Instead, job context contributes more to happiness, including such factors as chatting with co-workers and being free from “time pressure.”

Kahneman says each moment of the experiencing self lasts about 3 seconds, most of them vanishing without a trace. What gets remembered by the remembering self are changes in the story, significant (intense) moments in the story, and as mentioned earlier, the ending, i.e., our brain tends to tint the entire story with the intensity of its ending.

We may have owned a watch for several years, and enjoyed it very much; but at some point if we have many problems and servicing challenges or poor customer service, we might end up selling it and remembering it negatively, despite the difficulties only forming a tiny fraction of the overall duration of our ownership.4

“The way to block errors that originate in System 1 is simple in principle: recognise the signs that you are in a cognitive minefield, slow down and ask for reinforcement from System 2.”

The things we pay attention to have major implications for our moods. “Active forms of leisure,” such as physical activity or spending time with good friends, satisfy us a lot more than the “passive leisure” of, for example, watching series on Netflix. We can’t necessarily change our job or disposition, but we can change what we focus on and how we spend our time. Focus shapes our self-assessments: “Nothing in life is as important as you think it is when you are thinking about it.”

Our two selves are intertwined with our two mental systems: System 2 constructs our remembering self, but our tendency to weigh experiences by their final moments and to favour “long pleasures and short pains” comes from System 1. The relationship between our different selves holds implications for philosophers and policy makers.

We would make different decisions about which social, health and economic issues to address, and how to address them, depending on whether we see the perspective of the remembering self or of the experiencing self as primary.

The point of this is how we can often feel very different about our life, a holiday, or the ownership of a specific watch… than we feel while we are living it. Experiencing a health decline towards the end of our life can distort our perception or memory of the entire life itself. Getting robbed at the end of an epic holiday can shape decisions about future holidays, even if the entire holiday apart from the robbery was actually amazing. Having bad experiences with customer service or very costly repairs can make us forget how much we actually enjoyed a particular watch.

In general, recognising how these different mental systems work can help us realise that the purely rational beings favoured by all the traditional economic theory are fictional, and that real people need help making better judgments in their financial and life choices.

Understanding how our minds work can help us advocate for policies which take such issues into account. The converse is also true: Because our minds do not function optimally in all instances, rules should protect people from those who would “deliberately exploit their weaknesses.” The rationale being, if individuals find it difficult to identify flaws in their own System 1 processing, an organisation can operate with more methodical rationality than the separate individuals within it.

I will leave it there, and hope you enjoyed the post. Let me know in the comments below!

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