In my opinion, the work of Kahneman and Tversky is probably the most important work in psychology and economics in the last century. I mention cognitive biases in conversation on a daily basis. Many years ago I was considering doing a PhD in economics, but I gave up the idea when I realized that economic theory is based on a completely invalid assumption - that people are rational and make rational decisions based on self-interest. If this was true the entire advertising industry would not exist. The concepts of brands, corporate image, basically everything that goes into modern advertising is direct proof that humans are not rational.

Daniel Kahneman and Amos Tversky revolutionized psychology with their work on decision making under uncertainty. Kahneman describes the mind as consisting of two systems - System 2 is what people normally think of the mind - the part that thinks in words, analyzes things and makes logical decisions. System 1 is what most people refer to as the "unconscious" mind, the part that reacts and makes judgements without analysis. Their work reveals that System 1 is far more important than most people think.

Far from making logical, rational decisions based on evidence most decisions are made using heuristics and cognitive biases. A heuristic is a rule-of-thumb - an easy way to answer difficult questions, usually by substituting simpler questions which are similar. For example, if you are asked how worried you are about terrorist attacks your reply has nothing to do with the actual rate of attacks. Unconsciously you think of how many attacks you can think of and answer based on that. So if you see a lot of terrorist attacks on the news you probably think the chances of being affected by one are far greater than they actually are. This is called the availability heuristic - people judge how common something is by how easily they can remember instances of it.

Cognitive biases are exactly what they sound like - unconscious biases that effect how we process information. My favorite is the confirmation bias, which predisposes people to accept information that is consistent with their opinions and beliefs and reject information that is not. If you think about it it is really quite simple and obvious. Say, for example, I think that all immigrants are criminals. If I hear about a crime commited by an immigrant I think, "there's proof that I'm right." And if I hear statistics that say that immigrants are less likely to commit crimes I just ignore it or say that the source must be wrong. If you think about it, this is really obvious, but until Kahneman and Tversky wrote about it no one had ever thought of it.

Kahneman says that System 2, the thinking part of the brain, is lazy and does as little as possible, relying mostly on snap judgements made by System 1. Personally I would go even further than that. I think that System 2's primary purpose is communicating thoughts and ideas by putting them into language, and it's ability to think logically is just a side effect. I think that unless one makes purposeful effort to think through something logically, what System 2 will do is try to put what System 1 has already decided into words. In other words when we think we are thinking through a decision, we are really just rationalizing what System 1 wants. Of course there are exceptions to this and people can and do use System 2 to analyze data and make decisions, but in my opinion, most of what System 2 does is rationalizing.

Since Kahneman and Tversky released their paper on decision making under uncertainty, hundreds of other heuristics and cognitive biases have been discovered and named. While humans tend to think of ourselves as highly evolved and highly intelligent, all of this work tends to show that we make decisions in a much less thoughtful way than we think. When we make judgements under uncertainty, for the most part we do not analyze the evidence. Instead we use heuristics and biases to "estimate" the answer to the question by substituting answers to somewhat similar questions, or maybe we just rationalize whatever our subconscious mind has already decided.

Labels: books, psychology