For years, professors at Duke University conducted a survey in which the chief financial officers of large corporations estimated the returns of the Standard & Poor’s index over the following year. The Duke scholars collected and examined 11,600 such forecasts. The conclusion was straightforward: financial officers of large corporations had no clue about the short-term … Read more
Thinking: Fast and Slow by Daniel Kahneman is about the ways in which our automatic patterns of thought can mislead us. But the book is not merely a collection of fallacies of the mind, but a study of the different conditions that can affect how we think, and even, how we remember. Throughout the book, … Read more
P. 97) System 1 substitutes complex questions for simpler ones: You rarely feel stumped. Even if you don’t really understand something, you make conclusions based on a small amount of evidence that you don’t understand. You like some people and dislike others. You feel a stock will succeed. You distrust a stranger. All of this … Read more
P.89) System 2 deals with purposeful questions, whether from abroad or from within. There is no limit to what these questions can be, but they must be specific. System 1 constantly monitors what is happening internally and externally. These basic assessments play an important role in intuitive judgement because they substitute for more difficult – … Read more
P. 84 Halo effect. You have an impression about someone, colours everything else you think about them. Kahneman allowed cognitive ease to determine how he graded assignments, when he found a student who did well on one question, he became less critical of their answers in subsequent questions. Also known s a general principle:decorrelate error. … Read more
P.40 – to maintain a coherent train of thought and engage in effortful thinking requires self control. the frequent switching of tasks and speeded up mental work are probably not intrinsically pleasurable -we will avoid them when possible. That is how the law of least effort came to be a law. Even without time pressure, … Read more
One of the important ways in which modern people differ from ancient people, is that modern society has mastered risk. That is not to say that each individual has mastered risk, but that each individual has at their disposable extremely powerful tools, passed down from great thinkers, that allows them to understand risk better than … Read more
In Thinking: Fast and Slow, Kahneman explains the representativeness heuristic, by giving us the example of Tom W, a fictional graduate student. Assume that you know nothing about Tom W, and you were asked to guess which major he is most likely in. I will simplify the example and include only three of these majors. … Read more
On September 14, 2019, a drone hit two oil facilities in Aramco. The Houthis in Yemen claimed responsibility, proclaiming that the strike was revenge for the hostilities they are facing on their own soil, in a civil war against a Saudi backed government. The strikes cut Saudi Arabia’s oil production by half. I was reminded … Read more