Daniel Kahnemann got the nobel prize for his study. And he wrote one of the most important books on behavioural economics – ever. Does this have anything to do with tech. Not at first. But it is all about intuition, analysis and formulas and how we make desicions based on gut feeling or rationality. And now that we are entering a more and more data- and metric-driven society, it is about time to think about why we are acting the way we do and what algorithms want us to do. One thing upfront: this book is awesome!
„Many people are overconfident, prone to place too much faith in their intuitions. They apparently find cognitve effort at least mildly unpleasant and avoid it as much as possible.“
Right on the second page of the introduction Kahnemann poses the question, whether people „have a similar intuitve feel for the basic principles of statistics“ as they have for grammar? Most people would probably agree, either because their statistical senses are very well or their grammar is pretty bad. But: As Kahnemann points out, we almost never ever listen to the rational side of arguments. There is so much around us in the world that we spent most of the time in auto pilot mode. Very little time we switch on our big heads to reason on a certain question. It is just too exhausting…
In order to elaborate on this Kahnemann introduces two agents: System 1 and System 2. System 1 is the surficial, spontaneous and fast co-pilot putting us through everythink. It is only when he stumbles, that System 2 – „the lazy controller“ – comes into play. But once System 2 is at work, we are absent-minded and we fail to react on what happens around us. Kahnemann and his friend Amos Tversky have develop tests, that make the reader switch between the systems – and it is spooky how well they are working.
And what’s more, once the two scientists determine in which mode we are in, they manage to manipulate us – be it by priming, cognitive easing or anchoring and so on. Examples:
– people (and scientists, quite often) seek data that are likely to be compatible with the beliefs they currently hold.
– the standard practice of open discussion gives too much weight to the opinions of those who speak early and assertively, causing others to line up behind them.
In short: we are driven by heuristics and biases. Kahnemann’s recommendation is to test our assumptions against reality. And here is where digital economy comes into play. To avoid the „law of small numbers“ companies should run A/B-Tests. Apply Large-Scale Data Analysis in order to avoid „regression to the mean“ and to tame intuitive predictions.
I think it is save to say, that we are entering an age of quantitative – Big Data and quantified-self are just experimenting fields for much more…it is worth thinking about how this will change our behaviour. „Thinking, Fast and Slow“ is just the perfect platform to start from.
Conclusion: Kahnemann’s book is the perfect lesson to teach yourself to unbiased and modest predictions and assumptions: „If you expect your predictions to be of modest validity, you will never guess an outcome that is either rare or far from the mean. If your predictions are unbiased, you will never have the satisfying experience of correctly calling an extreme case.“ And this is the best way to tackle overconfidence, before it even starts to work at your perception.
„Thinking, Fast and Slow“ by Daniel Kahnemann. Published in 2011 by Penguin Books. 18,95 Euro.