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Anchoring effect

Anchoring effect is the influence of exposure to a number on a logically-unrelated numerical estimate. Example: An estimate of the percentage of African countries in the U.N. is influenced by prior exposure to a randomly generated number. When anchoring involves System 1, it is a form of priming. But anchoring can also occur as part of conscious estimation, a System 2 operation.

Availability heuristic

Availability heuristic is the term for judging the frequency of some kind of event by the ease with which instances can be recalled. Example: Celebrity divorces are assumed to be common because examples come to mind easily.

Base rate

The base rate is a simple rate that prevails in a population. Example: Worldwide, the base rate of left-handers is about 9 or 10 percent.

Cognitive ease

The mental comfort associated with having information in clear view and being able to reach conclusions easily is known as cognitive ease. This condition promotes, and is promoted by, System 1 thinking.

Cognitive illusions

Cognitive illusions are various non-rational influences on belief. Example: A proverb that rhymes seems more likely to be true than the same proverb expressed in words that do not rhyme.

Econs versus humans

Econs versus humans is the contrast between idealized decision-makers (econs), who follow the rules of expected utility theory, and imperfect human beings (humans) whose thinking, prone to various kinds of irrationality, is better described by prospect theory.

Expected utility theory

In economics, this is the standard account of how people make choices is called the expected utility theory. Every possible outcome has a numerical utility. The expected utility of every possible course of action is an average of the possible outcome utilities weighted by their probability. The course of action chosen is the one with the highest expected utility.

Experiencing self versus remembering self

The experiencing self is the self that actually goes through experiences and is happy or sad depending on the quality and duration of all parts of an experience. The remembering self looks back and judges the experience by focusing on the most intense part and the very last part, ignoring the quality and duration of the rest.

Framing

Framing is the effect on people’s choices of the way their options are framed. Example: Given $50, people would rather keep $20 than lose $30, even though the result is the same.

Heuristic

A heuristic is a simple, low-effort procedure used to generate answers to difficult questions. The answers are not always reliable.

Planning fallacy

Planning fallacy is the term for the formulating plans and forecasts based on something close to a best-case scenario and ignoring the statistics of similar cases, where a wide range of unpredictable events caused failure or delays.

Priming

The influence of exposure to a word, number, or image on subsequent behavior is called priming. Example: Seeing the word EAT makes it more likely that one will complete SO_P as SOUP instead of SOAP.

Prospect theory

Prospect theory is a modification of expected utility theory, intended to more accurately reflect how real human beings make choices. Its three key departures from expected utility theory are (1) evaluation relative to a neutral reference point or “adaptation level,” (2) diminished sensitivity to both large gains and large losses, and (3) greater sensitivity to losses than to gains.

Regression to the mean 

Regression to the mean is the term for the tendency of an individual who over- or under-performs the mean on one occasion, then performs more nearly at the mean the next time. This statistical phenomenon is often misinterpreted in causal terms. Example: A cadet pilot praised for a well-executed landing tends to do less well the next time, while one criticized for a clumsy landing tends to do better the next time. The praise and criticism are irrelevant; the changes in performance are due simply to regression to the mean.

Representativeness heuristic 

Using stereotypes, rather than statistical likelihood, to judge whether a person or a thing is of a certain kind is called representativeness heuristic. Example: Someone reading the New York Times on a subway train may be judged to most likely be a PhD, even though the majority of subway riders are not PhDs.

Substitution

Substitution is letting the answer to a simple question stand in for the answer to a difficult question. Example: A person answers the question “How happy are you with your life?” by turning to the question “What is my mood right now?”

Sunk-cost fallacy

The error of sticking with a decision one would abandon if one had not already sunk resources into it is called sunk-cost fallacy. Example: A basketball fan drives through a blizzard to see a game because he paid for the tickets. If he’d been given the tickets for free, he would stay home.

System 1

System 1 is the first of two ways of thinking described in the book—the “fast” way. It is a quick, involuntary, and low-effort way of generating opinions and other reactions based on easily available information. It is associated with confidence and other positive feelings.

System 2

System 2 is the second of two ways of thinking. Slow, voluntary, and effortful, involving deliberate evaluation of information that is gathered as needed, not just taken as given. System 2 acts as a check on System 1 but is not always used because of the effort required.

WYSIATI

WYSIATI is an acronym for “What You See Is All There Is.” It refers to System 1’s tendency to jump to conclusions based on available evidence, even when other, unseen evidence is known to exist.

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