Thinking, Fast and Slow

System 2 is the complement to System 1 and represents the slow thinking of the rational mind. It requires effort to perform, as exemplified by the process of solving math problems. System 2 can override the quick-thinking System 1, but only if a person becomes aware of a reason to do so. System 1 can sometimes create such strong impressions that System 2 cannot effectively override them. Further, System 2 is generally very lazy and will avoid expending effort whenever possible.

A heuristic is similar to a rule of thumb. Kahneman provides a “technical definition” of the term: A heuristic is “a simple procedure that helps find adequate, though often imperfect, answers to difficult questions” (98). The term is important because it refers to people’s tendency to allow System 1 to respond to an easy question rather than employ System 2, which would require more effort to address the question presented.

This deliberately awkward acronym means “what you see is all there is,” which Kahneman explains is a general truth of how System 1—and often the human mind generally—operates. Essentially, it means that System 1 will create a causal narrative from available information, with no inkling that major data may be missing or that causation does not exist, to create an illusion of understanding even if that understanding is wildly off base.

Intensity matching is another significant feature of System 1 that allows it to generate values across domains. For example, feelings about an policy issue may be very strong, which intensity matching would translate into a very strong answer to the target question about how much money a person should donate to support a political candidate who champions said issue.

Cognitive ease expresses the “laziness” of System 2 while also identifying the lack of effort as something associated with positive feelings. People are drawn to cognitive ease; they feel good when they experience it and usually will not exert cognitive effort unless they believe it is clearly in their interest to do so. This preference for, and reward from, cognitive ease underlies many of the heuristics and biases discussed in Part 2 and continues to be relevant throughout the remainder of the book.

Prospect theory, developed by Tversky and Kahneman in the 1970s, ultimately produced the subdiscipline of behavioral economics by dethroning rational choice theory in economics more broadly. The basic insights of prospect theory demonstrate that people do not act strictly in their rational self-interest, largely because of the processes discussed in Parts 1-3. A core recognition that drove its development was that people tend to be risk-seeking when it comes to losses, which previous theory was unable to account for. This theory is easily Kahneman’s best-known work and likely his most significant contribution to any discipline.

Applying the assumptions of prospect theory to predict human decision-making yields a table with four options, which is reproduced in Figure 13 on Page 317. The boxes represent the probability of an event (high or low) on the x axis and whether the event is a gain or loss on the y axis. It produces a consistent and experimentally validated set of attitudes toward risk on the basis of those factors.

“Econs” is the facetious name given to the imaginary agents of traditional economic theory, who are supposed to be entirely rational, wholly selfish, and unchanging in their tastes. Econs are regularly contrasted with actual humans studied by psychologists. Much of the contribution of behavioral economics has been to replace Econs with humans in the assessment and application of economic principles, and similar developments have occurred elsewhere in policy discussions.

The “experiencing self” is Kahneman’s term for a person’s in-the-moment sensations of pleasure or pain. The experiencing self has less influence over the decisions people make based on their past experiences than one might expect. This is because of a tyranny of the remembering self, which is contrasted against the experiencing self.