Note: This review is by my husband Jim.
Daniel Kahneman won a Nobel Prize in economics for the work he did with his long-time intellectual partner, Amos Tversky. (Tversky probably would have shared in the prize had he lived.) Remarkably, neither man was an economist — rather, they were psychologists whose work had extraordinary economic consequences. In this outstanding book, Thinking, Fast and Slow, Kahneman restates, summarizes, and popularizes much of their joint research. [Michael Lewis’s new book, The Undoing Project: A Friendship That Changed Our Minds… is about their relationship.]
A unifying theme of this book is that the human mind operates in at least two distinct and separate ways. The first way (the author calls it System 1) is instinctive, nearly instantaneous, efficient, very useful, but often misleading and sometimes downright wrong. The second way (System 2) is deliberate, ratiocinative, relatively slow, and generally more accurate than System 1. But, as Kahneman shows, System 2 also can be self-deceptive.
Kahneman begins by elaborating on the basic elements of the two-systems approach to making choices. He then explores why it is so difficult for us to think “statistically” rather than, say, associatively, or metaphorically. The third part describes “our excessive confidence in what we believe we know, and our apparent inability to acknowledge the full extent of our ignorance….” [This of course has a lot of significance lately given all the speculation over why so many people adhere to “alternative facts.”]
In the fourth part, Kahneman addresses the standard economic model that posits economic agents act rationally. Kahneman’s work is significant for economics because he demonstrates that real people “are not well described by the rational agent model” that is the basis of the Chicago School and much other economic analysis. It is not that people are always or even mostly irrational, but that there are occasions where it is extremely difficult to be perfectly consistent in one’s beliefs.
Finally, he reviews recent research that introduced the fascinating distinction between “the experiencing self” and “the remembering self,” which, as he demonstrates, “do not have the same interests.” Which one will guide us, and which one will inform our determination of “well-being”?
Kahneman and Tversky influenced and were influenced by University of Chicago economist Richard Thaler. Together, they helped form a new discipline called behavioral economics. One of the more interesting consequences of their analyses is a departure from the strictly laissez faire approach to public policy advocated by Milton Friedman to the slightly more paternalistic approach advocated by Thaler in Misbehaving and by Thaler and Cass Sunstein in their best seller, Nudge.
The book is dedicated to the memory of Amos Tversky, who died in 1996.
Evaluation: Thinking, Fast and Slow is extremely stimulating and very lucidly written. It is considered to be a “landmark” in economics and an intellectual tour de force.
Rating: 4.5/5 stars
Published by Farrar, Straus and Giroux, 2011