Thinking, Fast and Slow

Daniel Kahneman spent his career cataloguing the predictable ways intelligent people misjudge. Here he organizes that work around two characters: System 1, the fast, automatic mind that produces impressions and snap answers, and System 2, the effortful mind that can check them but usually doesn't bother.

No one was better placed to write it. Kahneman and his longtime collaborator Amos Tversky developed prospect theory and much of the heuristics-and-biases research, work that won Kahneman the 2002 Nobel Prize in economics even though he was a psychologist. Michael Lewis later told the story of the Kahneman-Tversky partnership in The Undoing Project; this is the work itself, in the author's own voice.

The book was a bestseller, won the 2012 National Academy of Sciences best book award and was named a best book of 2011 by the New York Times Book Review, The Economist and the Wall Street Journal. Reviewers at Kirkus found the later chapters on probability and risk denser going. A bigger caveat came with psychology's replication crisis: several priming studies in the chapter on the associative machine have not held up, and Kahneman publicly conceded that he had placed too much faith in underpowered studies. The core findings on anchoring, loss aversion and overconfidence remain far better supported.

Anyone who allocates capital, sets forecasts or sits on an investment committee should read it.

1. Your first answer is System 1's answer. Fast intuition substitutes easier questions for hard ones, so a confident valuation or forecast may be answering something other than what was asked.
2. Anchors move numbers. Arbitrary reference points, from a last trade price to an opening bid, pull estimates toward them even when everyone knows they are irrelevant.
3. Losses hurt more than gains please. Loss aversion and reference points explain why investors hold losers, sell winners too early and reject favorable bets framed as possible losses.
4. Skill can be an illusion. In fields with noisy feedback, such as stock picking, confidence and performance are weakly linked, so judge track records statistically rather than by conviction.
5. Take the outside view. Before trusting a project plan or deal model, ask how similar cases have turned out, then adjust from that base rate.

After an introduction, the book unfolds in five parts across 38 short chapters, followed by two appendixes reprinting Kahneman and Tversky's landmark papers.

1. Two systems. Kahneman introduces the fast, intuitive System 1 and the slow, effortful System 2, and shows how cognitive ease, priming and the urge for coherent stories shape judgment.
2. Heuristics and biases. He explains why people reason badly about probability: anchoring, availability, the neglect of base rates, the Linda problem and the conjunction fallacy, and the failure to expect regression to the mean.
3. Overconfidence. This part covers the illusion of understanding, the illusion of validity and skill, including his analysis of investment advisers whose rankings did not persist from year to year, when to trust expert intuition, and the outside view as a fix for the planning fallacy.
4. Choices. Returning to economics, he lays out prospect theory, loss aversion, the endowment effect, the weighting of rare events, risk policies and framing.
5. Two selves. He distinguishes the experiencing self from the remembering self and draws out what that means for measuring well-being and making life decisions.

Major New York Times bestseller Winner of the National Academy of Sciences Best Book Award in 2012 Selected by the New York Times Book Review as one of the ten best books of 2011 A Globe and Mail Best Books of the Year 2011 Title One of The Economist's 2011 Books of the Year One of The Wall Street Journal's Best Nonfiction Books of the Year 2011 2013 Presidential Medal of Freedom Recipient Kahneman's work with Amos Tversky is the subject of Michael Lewis's The Undoing Project: A Friendship That Changed Our Minds In the international bestseller, Thinking, Fast and Slow, Daniel Kahneman, the renowned psychologist and winner of the Nobel Prize in Economics, takes us on a groundbreaking tour of the mind and explains the two systems that drive the way we think. System 1 is fast, intuitive, and emotional; System 2 is slower, more deliberative, and more logical. The impact of overconfidence on corporate strategies, the difficulties of predicting what will make us happy in the future, the profound effect of cognitive biases on everything from playing the stock market to planning our next vacation—each of these can be understood only by knowing how the two systems shape our judgments and decisions. Engaging the reader in a lively conversation about how we think, Kahneman reveals where we can and cannot trust our intuitions and how we can tap into the benefits of slow thinking. He offers practical and enlightening insights into how choices are made in both our business and our personal lives—and how we can use different techniques to guard against the mental glitches that often get us into trouble. Winner of the National Academy of Sciences Best Book Award and the Los Angeles Times Book Prize and selected by The New York Times Book Review as one of the ten best books of 2011, Thinking, Fast and Slow is destined to be a classic.