Thinking, Fast and Slow - Daniel Kahneman - Book Review

Thinking, Fast and Slow by Daniel Kahneman

My rating: 5 of 5 stars

Are Human Beings rational? Most of us know that we are not. Daniel Kahneman has collated his detailed research work into a single book and describes how our mind works. Daniel Kahneman won Nobel Prize for Economics in 2002 for his works in Behavioural Economics.

The book starts with an introduction to our thinking and how we work. Daniel Kahneman speaks about two systems inside our mind, namely System 1 and 2. System 1 is the fast thinking system that works based on intuition. System 2 is the slow thinking system that takes decisions rationally. More often, we take decisions based on System 1. System 1 is so powerful that it overrides System 2 in most of the cases.

The author has divided the book into five parts. The first part is about the two systems and how our mind works. He gives us many famous perceptions and concludes that no matter, how much our mind knows that the perception is false, System 1 will make us believe that it is true. More often than not, we are shown two lines which are of similar size, but appears unequal in appearance. By now, our mind should have understood that they are equal. But, we continue to perceive that they are unequal. This famous Muller Lyer Experiment is a result of our System Conflict.

The second part is on Heuristics and Biases. In this part, the author says how we are susceptible to biases and how our mind plays with it. For example, car accidents result in more deaths than flight accidents. Still, the nature of flight accidents make us fear flight travel. Similarly, rare disasters make us fear about those events rather than normal events. He also says how statistics can turn if wrong base is used and how often we use statistics wrongly to make it comply with our intuition.

The third part is on Overconfidence. Here, the author writes about various illusions. He says that our mind fits in patterns to the success stories and make us think that we need to repeat them in order to be successful. But, more often than not, it doesn't result in a success. He also writes about how intuitions are more often wrong and how we continue to believe them. But, he also writes about when intuitions can be correct sometimes.

The next part is on choices. This is a part where he has written about most of his significant research works in the field of Economics. He says how Utility theory has some errors and how Prospect theory aims to correct them. He writes about the difference between Economists and Human Beings. Reference point is important to find impact and we don't use it very often. Getting rich by $10 is different for a millionaire and a poor guy.

In the final part, he concludes by writing about two type of selves - Experiencing self and Remembering Self. He says that more often, people do works based on Remembering self, though it might be more painful for experiencing self.

He uses the term 'Loss Aversion' in the book often. Human Mind is oriented towards avoiding losses, rather than seeking gains. Gains must outnumber losses in the ratio of 2.5: 1 for us to accept the gamble. He refers this to the evolution of mankind. In order to survive, organisms have been trained to avoid losses and this has been imprinted in our mind.

Overall, the book is a good one for people who want to know about Psychology. The author is very humble and associates all those people who were present with him during that approach. He also writes about the limitations of his theories and says that he might be bound by some the theories and may not be right. The author has understood very well about human mind works and he has presented the book with a lot of examples and practical approaches. The book is a must read, if you are interested in knowing how you make decisions.

So if we read this book, will we think differently? Well, this is what Daniel Kahneman has to say,

It's not a case of: 'Read this book and then you'll think differently. I've written this book, and I don't think differently'

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Happy Reading!!!