© 2016 by Charles D. Jones

Thinking Fast or Slow

November 14, 2017

The study of behavioral economics, created by Daniel Kahneman and Amos Tversky at Hebrew University in Jerusalem in the early 1970's, is the fascinating fusion of psychology and economics. Michael Lewis (author of Money Ball, The Big Short, and The Blind Side among others) chronicled their lives and ground breaking work on decision making in The Undoing Project. Kahneman won the Noble Prize in economics in 2002, after Tversky's death. Others like Dan Ariely from Duke University have written about how our actions are often irrational, but when studied, can be predictable. Robert Thaler from the University of Chicago is the latest genius in the field, winning the 2017 Nobel Prize in economics last month.

 

Kahneman's book Thinking Fast and Slow is a treasure trove for anyone interested in how we process information and make decisions. In one of his experiments, subjects were asked, in what was called the Short Episode, to put one hand in painfully cold water until asked to remove it 60 seconds later. In the Long Episode, the first 60 seconds were identical to the Short Episode, but the temperature was adjusted to be 1 degree warmer for an additional 30 seconds. This was just enough for the participants to detect a slight decrease in pain. Finally they were given the option to repeat either the Long or Short Episode, not knowing the duration of either.

 

The experiment showed the difference in our 'remember self' and our 'experiencing self.' Our judgment, which is mostly a function of our fast thinking (intuitive/emotional) remembering self, has evolved to record the intensity of the moment when the episode is at its conclusion. When we neglect the duration of the experience, a function of our slow thinking (reasoning/logical) experiencing self, that omission will not serve us well if our goal is to lengthen pleasure and shorten pain. However, that's exactly what 80% of the participants did. They ignored the duration. They remembered the diminished pain in the last 30 seconds and opted to repeat the Long Episode, suffering 30 seconds of needless pain.

 

The real problem is that we think we get it right. We ignore our cognitive biases and are even overconfident in our erroneous decisions. A real life example of this kind of thinking occurs in a failed marriage. Many ex-spouses view it from the perspective of the remembering self. How did it end? Just because it ended painfully doesn't mean it was all bad. The duration of good times and bad times is often ignored--what Kahneman would call duration neglect. Another example is a long term investor who exits the stock market after a recent decline, ignoring the historically higher, but more volatile, returns offered by stocks and missing the next rally.

 

It would be nice if a warning bell sounded when our voice of reason/logic from our slow thinking, experiencing self was being drowned out by the louder intuitive/emotional voice of our fast thinking, remembering self. So how do we override errors from our fast thinking? One answer is somewhat obvious. Slow down. Ask for reinforcement from our slower thinking experiences. Another answer is to be more of an observer and less of an actor. Observers are often less cognitively busy and more open to information, gaining perspective. It's what we should be doing when we claim to be praying or meditating about a decision.

 

If we could do this, the societal impact could be astounding in areas of economics, politics, and religion. Had I personally been able to do this 15 years ago, I would not be here at Bastrop Federal Satellite Camp.

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