People are quite bad decision makers. The individual who acts soberly in his interests does not exist. We suffer from chronic self-estimation and only pick up what fits our street.
his great book, ‘Thinking, fast and slow’, is full of psychological statements for the irrational behaviour of humans. Because a summary of the book would have been about as long as the book itself, I only describe some of the facts that I found interesting. As the reason why people participate in lotteries while knowing that the statistical chance is incredibly small to win, why people overestimate themselves and how it is that you differ in good times from your good intentions. In an interesting English-language video about the book – at the bottom of this webpage – you can hear more. Below you can read the core ideas.
The two systems
According to Kahneman’s theory, each person has two types of systems from which one acts:
- System 1 works automatically and quickly based on impressions, inputs, intentions and feelings. The use of System 1 costs little effort and can be difficult to control.
- System 2 delivers conscious attention to the mental effort, the rational. This costs energy and is used to suppress impressions of system 1, which ensures self-control.
Both the use of System 2 and switching between tasks within system two costs energy except when people are in flow. A state of effortless concentration so deep that the perception of time, of yourself and problems, is completely lost. When System 2 is overworked, System 1 will affect behaviour, and we lose our self-control. Thus, on a stressful business day, we deviate from our (rational) good intent to no longer chew at work. The idea that the first submission is the correct answer is incorrect. Because it sounds so logical (from system 1), it’s hard to think further (System 2), and so, most people do not.
The skill of the professional/expert
Herbert Simon describes that intuition is nothing but recognition (System 1). A situation provides a clue, this clue gives access to information in someone’s memory, and this information leads to an answer. This means that intuition is only to be trusted when there is a degree of skill. According to Kahneman, skill comes from two basic conditions:
The environment in which someone operates must be sufficiently regular to be predictable.
The person should have had the opportunity to exercise for a long time in the regular environment.
Estimation without bias
People who are asked to make an estimate only use their intuition, which, in the absence of proficiency, usually leads to unjustified estimates. By using a statistical average to estimate your estimates, estimates are more valid. Kahneman describes four steps:
- Begin with an estimate of the average value.
- By intuition, determine the value of the specific situation based on clues.
- Estimate the correlation between the clues and the mean.
- If the correlation is 0.30, shift 30% from the average direction to the intuitive estimate.
Amos and Kahneman developed a prospect theory in which, based on probability and psychological responses of people, loss of hope and hope for profit risk is sought, or just avoided. A few interesting conclusions concern the four quadrants:
- When there is a small chance of winning a lot of money, people get a chance of winning and looking for a risk like at lotteries.
- When there is a big chance of winning a lot of money, people are afraid to get disappointed and get avert of risk. This allows people with unfavourable arrangements, such as a settlement in court.
- When there is a big chance of making a big loss, people are at risk of avoiding that.
- When there is a small chance of making big losses, people have a dislike of risk. As a result, they accept unfavourable arrangements, such as expensive insurance.
Some psychological aspects that can mislead system 1:
Mere exposure effect, regular exposure to a word or face make us judge that word or face more positively. Even if exposure goes so fast that we do not realize it. (System 1 allows for recognition of a word or face, without context)
Position testing strategy (or confirmation bias), our associative memory will assess a situation based on how the question is asked. Eg. Is Sam unseen? Or is Sam nice?
Halo-Effect tends to value (or to detest) anything from someone, including aspects you have not yet experienced. (1st impressions are saved in System 1). For example: What do you think of the following people? Jan: Intelligent / Active / Impulsive / Critical / Stubborn / Jealous Kees: Jealous / Stubborn / Critical / Impulsive / Active / Intelligent
Reference effect. When a person has to judge value, it is influenced by a possible reference value, even though it has absolutely nothing to do with the question. Asking for a donation for a good cause, a 5-dollar reference level yielded an average of $ 20, and a reference of 400 euros averaged 143 dollars.
Availability bias, the easier system 1 retrieves samples from memory, the truer a statement appears. Ask a couple the percentage of personal contribution to household duties and both will overestimate themselves (resulting in the sum of both above 100%). But the more difficult it becomes to get samples, the less convinced subjects are. For example, people assert themselves more assertively if they have to give three examples of assertive behaviour than when they need to name 12.