Early Indications June 2012 Review essay: Daniel Kahneman, Thinking Fast and Slow

In his masterful reframing of the history of science, The Structure of Scientific Revolutions, Thomas Kuhn introduced the notion of a paradigm shift. These shifts begin when what he called "normal science," the use of an accepted theory of the era in a given field, was confronted by a sufficiently large number of anomalies the theory couldn't explain. If the sun revolves around the earth, for example, then how can earth's night, day, and position relative to other non-solar heavenly bodies  be explained? The process of theory-building followed by anomaly accretion helps explain many pivotal moments in the history of science, which does not, Kuhn found, progress by steady addition to existing theory.

Daniel Kahneman won a Nobel prize in economics in 2002, despite not being an economist, for work done with his late collaborator Amos Tversky on numerous departures of observed human behavior from the tenets of neoclassical economics: briefly, that economic agents act independently on the basis of full and relevant information, that all actors seek always to maximize their utility, and that people have rational preferences among identifiable outcomes. Kahneman's new book, Thinking Fast and Slow, furthers this mission, but also does much more.

Kahneman begins the book by recounting a series of stories about the extraordinarily rich collaboration he enjoyed with Tversky, who died in 1996. The output of their professional and personal partnership continues to redefine the world's understandings of human choice, possibility, and self-deception.  As a personal tribute, this section is warm and affecting, but I believe Kahneman is building another layer of argument as well, to which we will return presently.

Humans pose (and face) a series of three paradoxes, embodied in the architecture of the book. The first of these, the contrast between quick intuitive judgments and considered calculation, is fascinating to observe and ponder: humans display a persistent habit of using cognitive shortcuts known as heuristics when confronted by new questions. A troublesome feature of the interplay between these two systems of thought is substituting an answerable, easier nearby question for a difficult one. "Is political candidate A qualified to govern a complex democracy?" is a hard question. On the other hand, "Is candidate A well dressed and carefully spoken?" is readily answered, so we frequently act on the false understanding that we have answered the tough, original question. In the search for easier questions, humans will conflate loudness with accuracy, or the first number at hand with a realistic estimate.

The second paradox exists between economic man and humans, who can be counted on to value fairness, for example, rather than reliably maximize utility at every opportunity. What Richard Thaler of the University of Chicago refers to as "econs" (the theoretical creatures) are rational and selfish, with persistent tastes that do not change, in contrary to "humans," who of course have limited information, change their mind, and are often generous. Experiment after experiment has shown patterns of preference and behavior that violate the neoclassical assumptions that continue to dominate economic orthodoxy, and the many examples in the book are fascinating, if unsettling: in Kuhnian fashion, Kahneman and his colleagues have built a mountain of anomalies.

Finally, Kahneman differentiates between the remembering self and the experiencing self. This set of insights draws in part on experiments involving colonoscopies and other unpleasant procedures as well as vacations and similar peak experiences.  Tellingly, if asked whether they would take a dream vacation under the condition that they would take an amnesiac drug and be denied all photos afterward, most people refused the vacation. In many instances, it appears we live for the future memory of the moment rather than for the moment itself. As elsewhere in the book, the implications of one single insight are momentous.

Within the extreme richness of Thinking Fast and Slow, the nuances and surprises embedded in these three discussions are far too numerous to summarize. Several insights struck me as illustrating the broad implications of this book. Certainly investing and business decisions need be examined in a new light, and policy choices should be informed as well. But unlike most examples of Kuhn's paradigm shifts, I believe Kahneman seeks also to improve individual human existence as well. Three examples follow:

-People are extremely deft at telling stories to explain the past: the Allies were confident of the ability to win World War II; the rich deserve their wealth as reward for hard work, moral worth, or other factors; the U.S. had a manifest destiny to subdue the American west and the various nations with prior claims thereto. Life is lived forward, however, and human foresight is demonstrably poor. Nevertheless, we as a species persist in overconfidence in our predictions in multiple domains.

-In contrast to hindsight narrative or overconfident foresight, an underappreciated proportion of existence derives from luck. A corollary of this fact is that reward structures at the top (CEOs) and bottom (the unemployed and disabled) of an income pyramid should probably be rethought.

-The mere fact of focusing on something artificially raises its profile: "Nothing is as important as we think it is as we are thinking about it."

Psychology is commonly defined as the study of the mind, singular. What Kahneman implies with Thinking Fast and Slow is perhaps the most profound legacy of his friendship with his longtime collaborator: by calling on people "around water coolers" to hold each other accountable for watching themselves think and for spotting each other's potential self-deception, Kahneman turns psychology -- and perhaps thinking itself -- into a communal enterprise. Bigger than prospect theory, heuristics, and the other theoretical breakthroughs of this one man's brilliant career, the potential of a renewed collective discourse could be the farthest reaching paradigm shift of all generated by what Kahneman and Tversky thought about together, at whatever speed.