Notebook for Thinking, Fast and Slow Kahneman, Daniel Citation (APA): Kahneman, D. (2011). Thinking, Fast and Slow [Kindle Android version]. Retrieved from Amazon.com Introduction Highlight (yellow) - Page 8 People tend to assess the relative importance of issues by the ease with which they are retrieved from memory— and this is largely determined by the extent of coverage in the media. Highlight (yellow) - Page 11 “The situation has provided a cue; this cue has given the expert access to information stored in memory, and the information provides the answer. Intuition is nothing more and nothing less than recognition.” Highlight (yellow) - Page 12 When confronted with a problem— choosing a chess move or deciding whether to invest in a stock— the machinery of intuitive thought does the best it can. If the individual has relevant expertise, she will recognize the situation, and the intuitive solution that comes to her mind is likely to be correct. This is what happens when a chess master looks at a complex position: the few moves that immediately occur to him are all strong. When the question is difficult and a skilled solution is not available, intuition still has a shot: an answer may come to mind quickly— but it is not an answer to the original question. The question that the executive faced (should I invest in Ford stock?) was difficult, but the answer to an easier and related question (do I like Ford cars?) came readily to his mind and determined his choice. This is the essence of intuitive heuristics: when faced with a difficult question, we often answer an easier one instead, usually without noticing the substitution. Part I. Two Systems Highlight (yellow) - 1. The Characters of the Story > Page 28 The best we can do is a compromise: learn to recognize situations in which mistakes are likely and try harder to avoid significant mistakes when the stakes are high. The premise of this book is that it is easier to recognize other people’s mistakes than our own. Highlight (yellow) - 2. Attention and Effort > Page 37 The most effortful forms of slow thinking are those that require you to think fast. Highlight (yellow) - 2. Attention and Effort > Page 38 We normally avoid mental overload by dividing our tasks into multiple easy steps, committing intermediate results to long-term memory or to paper rather than to an easily overloaded working memory. Highlight (yellow) - 3. The Lazy Controller > Page 41 People who are cognitively busy are also more likely to make selfish choices, use sexist language, and make superficial judgments in social situations. Highlight (yellow) - 3. The Lazy Controller > Page 41 if you have had to force yourself to do something, you are less willing or less able to exert self-control when the next challenge comes around. The phenomenon has been named ego depletion. Highlight (yellow) - 3. The Lazy Controller > Page 46 Intelligence is not only the ability to reason; it is also the ability to find relevant material in memory and to deploy attention when needed. Highlight (yellow) - 3. The Lazy Controller > Page 47 The testers found that training attention not only improved executive control; scores on nonverbal tests of intelligence also improved and the improvement was maintained for several months. Highlight (yellow) - 4. The Associative Machine > Page 51 cognition is embodied; you think with your body, not only with your brain. Highlight (yellow) - 4. The Associative Machine > Page 53 The “Florida effect” involves two stages of priming. First, the set of words primes thoughts of old age, though the word old is never mentioned; second, these thoughts prime a behavior, walking slowly, which is associated with old age. All this happens without any awareness. Highlight (yellow) - 4. The Associative Machine > Page 53 This remarkable priming phenomenon— the influencing of an action by the idea— is known as the ideomotor effect. Highlight (yellow) - 4. The Associative Machine > Page 54 You can see why the common admonition to “act calm and kind regardless of how you feel” is very good advice: you are likely to be rewarded by actually feeling calm and kind. Highlight (yellow) - 4. The Associative Machine > Page 55 The general theme of these findings is that the idea of money primes individualism: a reluctance to be involved with others, to depend on others, or to accept demands from others. Highlight (yellow) - 5. Cognitive Ease > Page 62 A reliable way to make people believe in falsehoods is frequent repetition, because familiarity is not easily distinguished from truth. Highlight (yellow) - 5. Cognitive Ease > Page 64 if you quote a source, choose one with a name that is easy to pronounce. Participants in an experiment were asked to evaluate the prospects of fictitious Turkish companies on the basis of reports from two brokerage firms. For each stock, one of the reports came from an easily pronounced name (e.g., Artan) and the other report came from a firm with an unfortunate name (e.g., Taahhut). Highlight (yellow) - 5. Cognitive Ease > Page 65 Cognitive strain, whatever its source, mobilizes System 2, which is more likely to reject the intuitive answer suggested by System 1. Highlight (yellow) - 5. Cognitive Ease > Page 66 Companies with pronounceable names do better than others for the first week after the stock is issued, though the effect disappears over time. Highlight (yellow) - 5. Cognitive Ease > Page 66 mere exposure effect. Highlight (yellow) - 5. Cognitive Ease > Page 68 increase cognitive ease (priming, a clear font, pre-exposing words) Highlight (yellow) - 5. Cognitive Ease > Page 68 putting the participants in a good mood before the test by having them think happy thoughts more than doubled accuracy. Highlight (yellow) - 5. Cognitive Ease > Page 69 Mood evidently affects the operation of System 1: when we are uncomfortable and unhappy, we lose touch with our intuition. Highlight (yellow) - 6. Norms, Surprises, and Causes > Page 72 A single incident may make a recurrence less surprising. Highlight (yellow) - 7. A Machine for Jumping to Conclusions > Page 79 Jumping to conclusions is efficient if the conclusions are likely to be correct and the costs of an occasional mistake acceptable, and if the jump saves much time and effort. Highlight (yellow) - 7. A Machine for Jumping to Conclusions > Page 80 When uncertain, System 1 bets on an answer, and the bets are guided by experience. The rules of the betting are intelligent : recent events and the current context have the most weight in determining an interpretation. Highlight (yellow) - 7. A Machine for Jumping to Conclusions > Page 81 In one condition of the experiment subjects were required to hold digits in memory during the task. The disruption of System 2 had a selective effect: it made it difficult for people to “unbelieve” false sentences. Highlight (yellow) - 7. A Machine for Jumping to Conclusions > Page 81 there is evidence that people are more likely to be influenced by empty persuasive messages, such as commercials, when they are tired and depleted. Note - 7. A Machine for Jumping to Conclusions > Page 81 Perhaps why late night commercials are effective? Highlight (yellow) - 7. A Machine for Jumping to Conclusions > Page 82 Alan: intelligent— industrious—impulsive— critical— stubborn—envious Ben: envious— stubborn— critical—impulsive— industrious—intelligent Note - 7. A Machine for Jumping to Conclusions > Page 82 Begin framing with positivity Highlight (yellow) - 7. A Machine for Jumping to Conclusions > Page 84 To derive the most useful information from multiple sources of evidence, you should always try to make these sources independent of each other. This rule is part of good police procedure. When there are multiple witnesses to an event, they are not allowed to discuss it before giving their testimony. Highlight (yellow) - 7. A Machine for Jumping to Conclusions > Page 85 The principle of independent judgments (and decorrelated errors) has immediate applications for the conduct of meetings, an activity in which executives in organizations spend a great deal of their working days. A simple rule can help: before an issue is discussed, all members of the committee should be asked to write a very brief summary of their position. This procedure makes good use of the value of the diversity of knowledge and opinion in the group. 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. Highlight (yellow) - 7. A Machine for Jumping to Conclusions > Page 86 Jumping to conclusions on the basis of limited evidence is so important to an understanding of intuitive thinking, and comes up so often in this book, that I will use a cumbersome abbreviation for it: WYSIATI, which stands for what you see is all there is. Highlight (yellow) - 7. A Machine for Jumping to Conclusions > Page 87 It is the consistency of the information that matters for a good story, not its completeness. Highlight (yellow) - 8. How Judgments Happen > Page 93 System 1 represents categories by a prototype or a set of typical exemplars, it deals well with averages but poorly with sums. Highlight (yellow) - 9. Answering an Easier Question > Page 97 If a satisfactory answer to a hard question is not found quickly , System 1 will find a related question that is easier and will answer it. I call the operation of answering one question in place of another substitution. Highlight (yellow) - 9. Answering an Easier Question > Page 98 “If you can’t solve a problem, then there is an easier problem you can solve: find it.” Highlight (yellow) - 9. Answering an Easier Question > Page 103 affect heuristic in which people let their likes and dislikes determine their beliefs about the world. Highlight (yellow) - 9. Answering an Easier Question > Page 105 executes skilled responses and generates skilled intuitions, after adequate training Part II. Heuristics and Biases Highlight (yellow) - 10. The Law of Small Numbers > Page 111 extreme outcomes (very high and/ or very low cancer rates) are most likely to be found in sparsely populated counties. Highlight (yellow) - 11. Anchors > Page 122 System 1 understands sentences by trying to make them true, and the selective activation of compatible thoughts produces a family of systematic errors that make us gullible and prone to believe too strongly whatever we believe. Highlight (yellow) - 11. Anchors > Page 124 The anchoring index is simply the ratio of the two differences (562/ 1,020) expressed as a percentage: 55%. Highlight (yellow) - 11. Anchors > Page 125 people who are asked difficult questions clutch at straws, Highlight (yellow) - 11. Anchors > Page 126 sales promotion for Campbell’s soup at about 10% off the regular price. On some days, a sign on the shelf said limit of 12 per person. On other days, the sign said no limit per person. Shoppers purchased an average of 7 cans when the limit was in force, twice as many as they bought when the limit was removed. Highlight (yellow) - 11. Anchors > Page 126 As in many other games, moving first is an advantage in single-issue negotiations— Highlight (yellow) - 11. Anchors > Page 126 My advice to students when I taught negotiations was that if you think the other side has made an outrageous proposal, you should not come back with an equally outrageous counteroffer, creating a gap that will be difficult to bridge in further negotiations. Instead you should make a scene, storm out or threaten to do so, and make it clear— to yourself as well as to the other side— that you will not continue the negotiation with that number on the table. Highlight (yellow) - 11. Anchors > Page 126 They instructed negotiators to focus their attention and search their memory for arguments against the anchor. The instruction to activate System 2 was successful. For example, the anchoring effect is reduced or eliminated when the second mover focuses his attention on the minimal offer that the opponent would accept, or on the costs to the opponent of failing to reach an Highlight (yellow) - 11. Anchors > Page 127 a message, unless it is immediately rejected as a lie, will have the same effect on the associative system regardless of its reliability. Highlight (yellow) - 11. Anchors > Page 128 you should assume that any number that is on the table has had an anchoring effect on you, and if the stakes are high you should mobilize yourself (your System 2) to combat the effect. Highlight (yellow) - 11. Anchors > Page 128 “The firm we want to acquire sent us their business plan, with the revenue they expect. We shouldn’t let that number influence our thinking. Set it aside.” Highlight (yellow) - 12. The Science of Availability > Page 131 You will occasionally do more than your share, but it is useful to know that you are likely to have that feeling even when each member of the team feels the same way. Highlight (yellow) - 12. The Science of Availability > Page 132 Self-ratings were dominated by the ease with which examples had come to mind. Highlight (yellow) - 14. Tom W’s Specialty > Page 146 To decide whether a marble is more likely to be red or green, you need to know how many marbles of each color there are in the urn. The proportion of marbles of a particular kind is called a base rate. Highlight (yellow) - 14. Tom W’s Specialty > Page 152 base-rate information will always be neglected when information about the specific instance is available, Highlight (yellow) - 14. Tom W’s Specialty > Page 155 “This start -up looks as if it could not fail , but the base rate of success in the industry is extremely low. How do we know this case is different?” Highlight (yellow) - 15. Linda: Less is More > Page 165 “They added a cheap gift to the expensive product, and made the whole deal less attractive . Less is more in this case.” Highlight (yellow) - 16. Causes Trump Statistics > Page 174 Subjects’ unwillingness to deduce the particular from the general was matched only by their willingness to infer the general from the particular. Highlight (yellow) - 16. Causes Trump Statistics > Page 174 The test of learning psychology is whether your understanding of situations you encounter has changed, not whether you have learned a new fact. Highlight (yellow) - 16. Causes Trump Statistics > Page 174 On the other hand, surprising individual cases have a powerful impact and are a more effective tool for teaching psychology because the incongruity must be resolved and embedded in a causal story. Highlight (yellow) - 16. Causes Trump Statistics > Page 174 You are more likely to learn something by finding surprises in your own behavior than by hearing surprising facts about people in general. Highlight (yellow) - 16. Causes Trump Statistics > Page 174 “We can’t assume that they will really learn anything from mere statistics. Let’s show them one or two representative individual cases to influence their System 1.” Highlight (yellow) - 17. Regression to the Mean > Page 175 rewards for improved performance work better than punishment of mistakes. Highlight (yellow) - 18. Taming Intuitive Predictions > Page 192 intuitive predictions tend to be overconfident and overly extreme. Highlight (yellow) - 18. Taming Intuitive Predictions > Page 192 If your predictions are unbiased, you will never have the satisfying experience of correctly calling an extreme case. Highlight (yellow) - 18. Taming Intuitive Predictions > Page 193 The goal of venture capitalists is to call the extreme cases correctly, even at the cost of overestimating the prospects of many other ventures. Part III. Overconfidence Highlight (yellow) - 19. The Illusion of Understanding > Page 203 If an event had actually occurred, people exaggerated the probability that they had assigned to it earlier. If the possible event had not come to pass, the participants erroneously recalled that they had always considered it unlikely. Highlight (yellow) - 20. The Illusion of Validity > Page 215 nearly all stock pickers, whether they know it or not— and few of them do— are playing a game of chance. Highlight (yellow) - 20. The Illusion of Validity > Page 219 people who spend their time, and earn their living, studying a particular topic produce poorer predictions than dart-throwing monkeys who would have distributed their choices evenly over the options. Highlight (yellow) - 20. The Illusion of Validity > Page 220 reality emerges from the interactions of many different agents and forces, including blind luck, often producing large and unpredictable outcomes. Highlight (yellow) - 20. The Illusion of Validity > Page 220 The first lesson is that errors of prediction are inevitable because the world is unpredictable. The second is that high subjective confidence is not to be trusted as an indicator of accuracy (low confidence could be more informative). Short-term trends can be forecast, and behavior and achievements can be predicted with fair accuracy from previous behaviors and achievements. Highlight (yellow) - 21. Intuitions Vs. Formulas > Page 223 the accuracy of experts was matched or exceeded by a simple algorithm. Note - 21. Intuitions Vs. Formulas > Page 223 The case for knowledge apps like the one Denise is field testing. Algorithmic predictions are good enough. Highlight (yellow) - 21. Intuitions Vs. Formulas > Page 224 Why are experts inferior to algorithms? One reason, which Meehl suspected, is that experts try to be clever, think outside the box, and consider complex combinations of features in making their predictions. Complexity may work in the odd case, but more often than not it reduces validity. Simple combinations of features are better. Highlight (yellow) - 21. Intuitions Vs. Formulas > Page 224 In a famous thought experiment, he described a formula that predicts whether a particular person will go to the movies tonight and noted that it is proper to disregard the formula if information is received that the individual broke a leg today. The name “broken-leg rule” has stuck. Highlight (yellow) - 21. Intuitions Vs. Formulas > Page 224 Another reason for the inferiority of expert judgment is that humans are incorrigibly inconsistent in making summary judgments of complex information. When asked to evaluate the same information twice, they frequently give different answers. The extent of the inconsistency is often a matter of real concern. Experienced radiologists who evaluate chest X-rays as “normal” or “abnormal” contradict themselves 20% of the time when they see the same picture on separate occasions. Highlight (yellow) - 21. Intuitions Vs. Formulas > Page 225 The research suggests a surprising conclusion: to maximize predictive accuracy, final decisions should be left to formulas, especially in low-validity environments. Highlight (yellow) - 21. Intuitions Vs. Formulas > Page 225 conducting an interview is likely to diminish the accuracy of a selection procedure, if the interviewers also make the final admission decisions. Because interviewers are overconfident in their intuitions, they will assign too much weight to their personal impressions and too little weight to other sources of information, lowering validity. Highlight (yellow) - 21. Intuitions Vs. Formulas > Page 226 The surprising success of equal-weighting schemes has an important practical implication: it is possible to develop useful algorithms without any prior statistical research. Simple equally weighted formulas based on existing statistics or on common sense are often very good predictors of significant outcomes. In a memorable example, Dawes showed that marital stability is well predicted by a formula: frequency of lovemaking minus frequency of quarrels Note - 21. Intuitions Vs. Formulas > Page 226 WOW!! WHAT THE FUCK!! Highlight (yellow) - 21. Intuitions Vs. Formulas > Page 226 The important conclusion from this research is that an algorithm that is constructed on the back of an envelope is often good enough to compete with an optimally weighted formula, and certainly good enough to outdo expert judgment. Highlight (yellow) - 21. Intuitions Vs. Formulas > Page 229 We take it for granted that decisions about credit limits are made without the direct intervention of any human judgment. Highlight (yellow) - 21. Intuitions Vs. Formulas > Page 231 Their only task was to elicit relevant facts about his past and to use that information to score each personality dimension. Highlight (yellow) - 21. Intuitions Vs. Formulas > Page 231 The big surprise to me was that the intuitive judgment that the interviewers summoned up in the “close your eyes” exercise also did very well, indeed just as well as the sum of the six specific ratings. Highlight (yellow) - 21. Intuitions Vs. Formulas > Page 231 intuition adds value even in the justly derided selection interview, but only after a disciplined collection of objective information and disciplined scoring of separate traits. Highlight (yellow) - 21. Intuitions Vs. Formulas > Page 232 A more general lesson that I learned from this episode was do not simply trust intuitive judgment— your own or that of others— but do not dismiss it, either. Highlight (yellow) - 21. Intuitions Vs. Formulas > Page 232 First, select a few traits that are prerequisites for success in this position (technical proficiency, engaging personality, reliability, and so on). Don’t overdo it—six dimensions is a good number. The traits you choose should be as independent as possible from each other, and you should feel that you can assess them reliably by asking a few factual questions. Next, make a list of those questions for each trait and think about how you will score it, say on a 1–5 scale. You should have an idea of what you will call “very weak”or “very strong.” Highlight (yellow) - 21. Intuitions Vs. Formulas > Page 232 To avoid halo effects, you must collect the information on one trait at a time, scoring each before you move on to the next one. Do not skip around. To evaluate each candidate, add up the six scores. Because you are in charge of the final decision, you should not do a “close your eyes.” Firmly resolve that you will hire the candidate whose final score is the highest, even if there is another one whom you like better— try to resist your wish to invent broken legs to change the ranking. Highlight (yellow) - 21. Intuitions Vs. Formulas > Page 233 “Whenever we can replace human judgment by a formula, we should at least consider it.”“He thinks his judgments are complex and subtle, but a simple combination of scores could probably do better.”“Let’s decide in advance what weight to give to the data we have on the candidates’ past performance. Otherwise we will give too much weight to our impression from the interviews.” Note - 21. Intuitions Vs. Formulas > Page 233 This is why principles work Highlight (yellow) - 22. Expert Intuition: When Can We Trust It? > Page 237 Intuition is nothing more and nothing less than recognition.” Highlight (yellow) - 22. Expert Intuition: When Can We Trust It? > Page 238 expertise in a domain is not a single skill but rather a large collection of miniskills. Highlight (yellow) - 22. Expert Intuition: When Can We Trust It? > Page 238 In chess, recurrent patterns of interacting pieces play the role of letters, and a chess position is a long word or a sentence. Highlight (yellow) - 22. Expert Intuition: When Can We Trust It? > Page 239 the confidence that people have in their intuitions is not a reliable guide to their validity. In other words, do not trust anyone— including yourself— to tell you how much you should trust their judgment. Highlight (yellow) - 22. Expert Intuition: When Can We Trust It? > Page 240 The answer comes from the two basic conditions for acquiring a skill: an environment that is sufficiently regular to be predictable an opportunity to learn these regularities through prolonged practice Highlight (yellow) - 22. Expert Intuition: When Can We Trust It? > Page 240 stock pickers and political scientists who make long-term forecasts operate in a zero-validity environment. Their failures reflect the basic unpredictability of the events that they try to forecast. Highlight (yellow) - 22. Expert Intuition: When Can We Trust It? > Page 241 Claims for correct intuitions in an unpredictable situation are self-delusional at best, sometimes worse. In the absence of valid cues, intuitive “hits”are due either to luck or to lies. Highlight (yellow) - 22. Expert Intuition: When Can We Trust It? > Page 241 intuition cannot be trusted in the absence of stable regularities in the environment. Highlight (yellow) - 22. Expert Intuition: When Can We Trust It? > Page 241 skill is much more difficult to acquire by sheer experience because of the long delay between actions and their noticeable outcomes. Whether professionals have a chance to develop intuitive expertise depends essentially on the quality and speed of feedback, as well as on sufficient opportunity to practice. Highlight (yellow) - 22. Expert Intuition: When Can We Trust It? > Page 243 If the environment is sufficiently regular and if the judge has had a chance to learn its regularities, the associative machinery will recognize situations and generate quick and accurate predictions and decisions. You can trust someone’s intuitions if these conditions are met. Highlight (yellow) - 22. Expert Intuition: When Can We Trust It? > Page 244 “How much expertise does she have in this particular task? How much practice has she had?”“Does he really believe that the environment of start-ups is sufficiently regular to justify an intuition that goes against the base rates?” Highlight (yellow) - 22. Expert Intuition: When Can We Trust It? > Page 244 “Did he really have an opportunity to learn? How quick and how clear was the feedback he received on his judgments?” Highlight (yellow) - 23. The Outside View > Page 251 The prevalent tendency to underweight or ignore distributional information is perhaps the major source of error in forecasting. Planners should therefore make every effort to frame the forecasting problem so as to facilitate utilizing all the distributional information that is available. Highlight (yellow) - 23. The Outside View > Page 251 Identify an appropriate reference class (kitchen renovations, large railway projects, etc.). Obtain the statistics of the reference class (in terms of cost per mile of railway, or of the percentage by which expenditures exceeded budget). Use the statistics to generate a baseline prediction. Use specific information about the case to adjust the baseline prediction, if there are particular reasons to expect the optimistic bias to be more or less pronounced in this project than in others of the same type. Highlight (yellow) - 23. The Outside View > Page 252 A well-run organization will reward planners for precise execution and penalize them for failing to anticipate difficulties, and for failing to allow for difficulties that they could not have anticipated— the unknown unknowns. Highlight (yellow) - 24. The Engine of Capitalism > Page 256 More often than not, risk takers underestimate the odds they face, and do not invest sufficient effort to find out what the odds are. Note - 24. The Engine of Capitalism > Page 256 Han Solo Highlight (yellow) - 24. The Engine of Capitalism > Page 257 Overall, the return on private invention was small, “lower than the return on private equity and on high-risk securities.” More generally, the financial benefits of self-employment are mediocre: given the same qualifications, people achieve higher average returns by selling their skills to employers than by setting out on their own. Note - 24. The Engine of Capitalism > Page 257 Noted. I'm an optimist though and want a different life even if it pays less. It's problem I accept. Highlight (yellow) - 24. The Engine of Capitalism > Page 258 most people genuinely believe that they are superior to most others on most desirable traits— Highlight (yellow) - 24. The Engine of Capitalism > Page 259 Many behavioral economists are comfortable with the “libertarian paternalistic” procedures that help people increase their savings rate beyond what they would do on their own. Highlight (yellow) - 24. The Engine of Capitalism > Page 260 the outcome of a start-up depends as much on the achievements of its competitors and on changes in the market as on its own efforts. Highlight (yellow) - 24. The Engine of Capitalism > Page 261 The consequence of competition neglect is excess entry: more competitors enter the market than the market can profitably sustain, so their average outcome is a loss. Highlight (yellow) - 24. The Engine of Capitalism > Page 261 In fact, Giovanni Dosi and Dan Lovallo call entrepreneurial firms that fail but signal new markets to more qualified competitors “optimistic martyrs”— good for the economy but bad for their investors. Highlight (yellow) - 24. The Engine of Capitalism > Page 262 Overconfidence is another manifestation of WYSIATI: when we estimate a quantity, we rely on information that comes to mind and construct a coherent story in which the estimate makes sense. Allowing for the information that does not come to mind— perhaps because one never knew it— is impossible. Highlight (yellow) - 24. The Engine of Capitalism > Page 263 Extreme uncertainty is paralyzing under dangerous circumstances, and the admission that one is merely guessing is especially unacceptable when the stakes are high. Acting on pretended knowledge is often the preferred solution. Highlight (yellow) - 24. The Engine of Capitalism > Page 264 He labels his proposal the premortem. The procedure is simple: when the organization has almost come to an important decision but has not formally committed itself, Klein proposes gathering for a brief session a group of individuals who are knowledgeable about the decision. The premise of the session is a short speech: “Imagine that we are a year into the future. We implemented the plan as it now exists . The outcome was a disaster. Please take 5 to 10 minutes to write a brief history of that disaster.” Highlight (yellow) - 24. The Engine of Capitalism > Page 265 As a team converges on a decision—and especially when the leader tips her hand— public doubts about the wisdom of the planned move are gradually suppressed and eventually come to be treated as evidence of flawed loyalty to the team and its leaders. The suppression of doubt contributes to overconfidence in a group where only supporters of the decision have a voice. The main virtue of the premortem is that it legitimizes doubts. Highlight (yellow) - 24. The Engine of Capitalism > Page 265 Furthermore, it encourages even supporters of the decision to search for possible threats that they had not considered earlier. Highlight (yellow) - 24. The Engine of Capitalism > Page 265 “They seem to suffer from an acute case of competitor neglect.” Part IV. Choices Highlight (yellow) - 25. Bernoulli’s Errors > Page 275 The happiness that Jack and Jill experience is determined by the recent change in their wealth, relative to the different states of wealth that define their reference points Highlight (yellow) - 25. Bernoulli’s Errors > Page 275 The same sound will be experienced as very loud or quite faint, depending on whether it was preceded by a whisper or by a roar. Highlight (yellow) - 27. The Endowment Effect > Page 293 Owning the good appeared to increase its value. Richard Thaler found many examples of what he called the endowment effect, Highlight (yellow) - 27. The Endowment Effect > Page 298 “How much do I want to have that mug, compared with other things I could have instead?” Highlight (yellow) - 28. Bad Events > Page 302 Other scholars, in a paper titled “Bad Is Stronger Than Good,” summarized the evidence as follows: “Bad emotions, bad parents, and bad feedback have more impact than good ones, and bad information is processed more thoroughly than good. The self is more motivated to avoid bad self-definitions than to pursue good ones. Bad impressions and bad stereotypes are quicker to form and more resistant to disconfirmation than good ones.” Highlight (yellow) - 28. Bad Events > Page 302 John Gottman, the well-known expert in marital relations, who observed that the long-term success of a relationship depends far more on avoiding the negative than on seeking the positive. Gottman estimated that a stable relationship requires that good interactions outnumber bad interactions by at least 5 to 1. Highlight (yellow) - 28. Bad Events > Page 302 a friendship that may take years to develop can be ruined by a single action. Highlight (yellow) - 28. Bad Events > Page 303 Economic logic implies that cabdrivers should work many hours on rainy days and treat themselves to some leisure on mild days, when they can “buy” leisure at a lower price. The logic of loss aversion suggests the opposite: drivers who have a fixed daily target will work many more hours when the pickings are slim and go home early when rain-drenched customers are begging to be taken somewhere. Highlight (yellow) - 28. Bad Events > Page 308 People who learned from a new catalog that the merchant was now charging less for a product that they had recently bought at a higher price reduced their future purchases from that supplier by 15%, an average loss of $ 90 per customer. The customers evidently perceived the lower price as the reference point and thought of themselves as having sustained a loss by paying more than appropriate. Moreover, the customers who reacted the most strongly were those who bought more items and at higher prices. The losses far exceeded the gains from the increased purchases produced by the lower prices in the new catalog. Note - 28. Bad Events > Page 308 Explicit promos or sales might not be worth it. Coupons might work though. Highlight (yellow) - 29. The Fourfold Pattern > Page 318 we were just as risk seeking in the domain of losses as we were risk averse in the domain of gains. Highlight (yellow) - 29. The Fourfold Pattern > Page 318 This is where people who face very bad options take desperate gambles, accepting a high probability of making things worse in exchange for a small hope of avoiding a large loss. Risk taking of this kind often turns manageable failures into disasters. Highlight (yellow) - 29. The Fourfold Pattern > Page 319 The thought of accepting the large sure loss is too painful, and the hope of complete relief too enticing, to make the sensible decision that it is time to cut one’s losses. This is where businesses that are losing ground to a superior technology waste their remaining assets in futile attempts to catch up. Because defeat is so difficult to accept, the losing side in wars often fights long past the point at which the victory of the other side is certain, and only a matter of time. Highlight (yellow) - 29. The Fourfold Pattern > Page 321 systematic deviations from expected value are costly in the long run— and this rule applies to both risk aversion and risk seeking. Consistent overweighting of improbable outcomes— a feature of intuitive decision making— eventually leads to inferior outcomes. Note - 29. The Fourfold Pattern > Page 321 In other words, one shouldn't be too risk averse nor too risk seeking. Perhaps the right word is stoic. Highlight (yellow) - 31. Risk Policies > Page 335 it is costly to be risk averse for gains and risk seeking for losses. Highlight (yellow) - 31. Risk Policies > Page 338 I sympathize with your aversion to losing any gamble, but it is costing you a lot of money. Please consider this question: Are you on your deathbed? Is this the last offer of a small favorable gamble that you will ever consider? Of course, you are unlikely to be offered exactly this gamble again, but you will have many opportunities to consider attractive gambles with stakes that are very small relative to your wealth. You will do yourself a large financial favor if you are able to see each of these gambles as part of a bundle of small gambles and rehearse the mantra that will get you significantly closer to economic rationality: you win a few, you lose a few. The main purpose of the mantra is to control your emotional response when you do lose. If you can trust it to be effective, you should remind yourself of it when deciding whether or not to accept a small risk with positive expected value. Remember these qualifications when using the mantra: It works when the gambles are genuinely independent of each other; it does not apply to multiple investments in the same industry, which would all go bad together. It works only when the possible loss does not cause you to worry about your total wealth. If you would take the loss as significant bad news about your economic future, watch it! It should not be applied to long shots, where the probability of winning is very small for each bet. Highlight (yellow) - 31. Risk Policies > Page 339 The combination of loss aversion and narrow framing is a costly curse. Individual investors can avoid that curse, achieving the emotional benefits of broad framing while also saving time and agony , by reducing the frequency with which they check how well their investments are doing. Highlight (yellow) - 31. Risk Policies > Page 340 A commitment not to change one’s position for several periods (the equivalent of “locking in” an investment) improves financial performance. Highlight (yellow) - 31. Risk Policies > Page 340 Decision makers who are prone to narrow framing construct a preference every time they face a risky choice. They would do better by having a risk policy that they routinely apply whenever a relevant problem arises. Highlight (yellow) - 31. Risk Policies > Page 341 “Each of our executives is loss averse in his or her domain. That’s perfectly natural, but the result is that the organization is not taking enough risk.” Highlight (yellow) - 32. Keeping Score > Page 344 finance research has documented a massive preference for selling winners rather than losers— a bias that has been given an opaque label: the disposition effect. Highlight (yellow) - 32. Keeping Score > Page 344 A rational agent would have a comprehensive view of the portfolio and sell the stock that is least likely to do well in the future, without considering whether it is a winner or a loser. Highlight (yellow) - 32. Keeping Score > Page 346 The sunk-cost fallacy keeps people for too long in poor jobs, unhappy marriages, and unpromising research projects. Highlight (yellow) - 32. Keeping Score > Page 351 Is it reasonable, in particular, to let your choices be influenced by the anticipation of regret? Susceptibility to regret, like susceptibility to fainting spells, is a fact of life to which one must adjust . Highlight (yellow) - 32. Keeping Score > Page 352 If you can remember when things go badly that you considered the possibility of regret carefully before deciding, you are likely to experience less of it. Highlight (yellow) - 32. Keeping Score > Page 352 My personal hindsight-avoiding policy is to be either very thorough or completely casual when making a decision with long-term consequences. Hindsight is worse when you think a little, just enough to tell yourself later, “I almost made a better choice.” Highlight (yellow) - 32. Keeping Score > Page 352 Their recommendation is that you should not put too much weight on regret; even if you have some, it will hurt less than you now think. Highlight (yellow) - 33. Reversals > Page 361 you should be wary of joint evaluation when someone who controls what you see has a vested interest in what you choose. Salespeople quickly learn that manipulation of the context in which customers see a good can profoundly influence preferences. Highlight (yellow) - 33. Reversals > Page 361 jurors who are to assess punitive damages are explicitly prohibited from considering other cases. Highlight (yellow) - 33. Reversals > Page 362 The system of administrative penalties is coherent within agencies but incoherent globally. Highlight (yellow) - 33. Reversals > Page 362 “It is often the case that when you broaden the frame, you reach more reasonable decisions.”“When you see cases in isolation, you are likely to be guided by an emotional reaction of System 1.” Note - 33. Reversals > Page 362 In short, consider the options before deciding. Highlight (yellow) - 34. Frames and Reality > Page 364 A bad outcome is much more acceptable if it is framed as the cost of a lottery ticket that did not win than if it is simply described as losing a gamble. We should not be surprised: losses evokes stronger negative feelings than costs. Highlight (yellow) - 34. Frames and Reality > Page 367 The five-year survival rates clearly favor surgery, but in the short term surgery is riskier than radiation. Highlight (yellow) - 34. Frames and Reality > Page 367 most of us passively accept decision problems as they are framed and therefore rarely have an opportunity to discover the extent to which our preferences are frame-bound rather than reality-bound. Highlight (yellow) - 34. Frames and Reality > Page 368 Decision makers tend to prefer the sure thing over the gamble (they are risk averse) when the outcomes are good. They tend to reject the sure thing and accept the gamble (they are risk seeking) when both outcomes are negative. Highlight (yellow) - 34. Frames and Reality > Page 371 sunk costs should be ignored. History is irrelevant and the only issue that matters is the set of options the theater patron has now, and their likely consequences. Highlight (yellow) - 34. Frames and Reality > Page 372 Broader frames and inclusive accounts generally lead to more rational decisions. Highlight (yellow) - 34. Frames and Reality > Page 373 The best single predictor of whether or not people will donate their organs is the designation of the default option that will be adopted without having to check a box. Highlight (yellow) - 34. Frames and Reality > Page 374 power of inconsequential factors as determinants of preference— Highlight (yellow) - 34. Frames and Reality > Page 374 “They will feel better about what happened if they manage to frame the outcome in terms of how much money they kept rather than how much they lost.” Highlight (yellow) - 34. Frames and Reality > Page 374 “They ask you to check the box to opt out of their mailing list. Their list would shrink if they asked you to check a box to opt in!” Part V. Two Selves Highlight (yellow) - 35. Two Selves > Page 380 Peak-end rule: The global retrospective rating was well predicted by the average of the level of pain reported at the worst moment of the experience and at its end. Highlight (yellow) - 35. Two Selves > Page 380 Duration neglect: The duration of the procedure had no effect whatsoever on the ratings of total pain. Highlight (yellow) - 35. Two Selves > Page 385 “You are thinking of your failed marriage entirely from the perspective of the remembering self. A divorce is like a symphony with a screeching sound at the end— the fact that it ended badly does not mean it was all bad.”“This is a bad case of duration neglect. You are giving the good and the bad part of your experience equal weight, although the good part lasted ten times as long as the other.” Highlight (yellow) - 36. Life as a Story > Page 387 A story is about significant events and memorable moments, not about time passing. Highlight (yellow) - 36. Life as a Story > Page 390 “She is an Alzheimer’s patient. She no longer maintains a narrative of her life, but her experiencing self is still sensitive to beauty and gentleness.” Highlight (yellow) - 37. Experienced Well-Being > Page 395 It is only a slight exaggeration to say that happiness is the experience of spending time with people you love and who love you. Highlight (yellow) - 37. Experienced Well-Being > Page 397 “The easiest way to increase happiness is to control your use of time. Can you find more time to do the things you enjoy doing?”“Beyond the satiation level of income, you can buy more pleasurable experiences, but you will lose some of your ability to enjoy the less expensive ones.” Highlight (yellow) - 38. Thinking About Life > Page 402 Nothing in life is as important as you think it is when you are thinking about it. Highlight (yellow) - 38. Thinking About Life > Page 404 your mood is determined by whatever you think about. Highlight (yellow) - 38. Thinking About Life > Page 406 Daniel Gilbert and Timothy Wilson introduced the word miswanting to describe bad choices that arise from errors of affective forecasting. This word deserves to be in everyday language. The focusing illusion (which Gilbert and Wilson call focalism) is a rich source of miswanting. In particular, it makes us prone to exaggerate the effect of significant purchases or changed circumstances on our future well-being. Conclusions Highlight (yellow) - 38. Thinking About Life > Page 409 The time that people spend dwelling on a memorable moment should be included in its duration, adding to its weight. Highlight (yellow) - 38. Thinking About Life > Page 409 A moment can also gain importance by altering the experience of subsequent moments. For example, an hour spent practicing the violin may enhance the experience of many hours of playing or listening to music years later. Similarly, a brief awful event that causes PTSD should be weighted by the total duration of the long-term misery it causes. Highlight (yellow) - 38. Thinking About Life > Page 413 Thaler and Sunstein advocate a position of libertarian paternalism, in which the state and other institutions are allowed to nudge people to make decisions that serve their own long-term interests. The designation of joining a pension plan as the default option is an example of a nudge. It is difficult to argue that anyone’s freedom is diminished by being automatically enrolled in the plan, when they merely have to check a box to opt out. Note - 38. Thinking About Life > Page 413 How I would like to parent Highlight (yellow) - 38. Thinking About Life > Page 416 The acquisition of skills requires a regular environment, an adequate opportunity to practice, and rapid and unequivocal feedback about the correctness of thoughts and actions. Highlight (yellow) - 38. Thinking About Life > Page 416 the heuristic answer is not necessarily simpler or more frugal than the original question— it is only more accessible, computed more quickly and easily. Highlight (yellow) - 38. Thinking About Life > Page 417 The way to block errors that originate in System 1 is simple in principle: recognize the signs that you are in a cognitive minefield, slow down, and ask for reinforcement from System 2.