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Kahneman describes two ways people think. For convenience, he refers to these styles or modes of thought as System 1 and System 2. The default system, active most of the time, is System 1, characterized by quick, automatic, barely conscious judgments that require little effort—in a word, intuition. System 2, which kicks in when System 1 runs into trouble, acts more slowly and more deliberately. It handles complex mental calculations and also handles carefully choreographed physical behaviors. System 2 activity is associated with a certain amount of mental strain. System 1, being quick to jump to conclusions, is easily led astray by irrelevancies. Priming is what happens when System 1 latches on to extraneous information, such as the font a sentence is printed in, to judge whether something is true or false. System 1 also tends to focus exclusively on the information at hand, even when information that points in a different direction is known to exist. This is the principle What You See Is All There Is (WYSIATI). Thirdly, System 1 likes to replace hard questions with easy ones, a habit Kahneman calls “substitution.” Often, the hard question will be a complicated factual one, while the easy substitute will be a question about one’s feelings of the moment.

System 1 is quick to spin a story, accurate or otherwise. System 2 is more cautious, but by no means infallible. Both systems are suggestible. For instance, how a person responds to a request for a numerical estimate can be influenced by a random number seen moments before—even when the person is consciously trying to come up with an accurate estimate. This phenomenon is called “anchoring.” System 2, whose operation involves effort, often gets lazy and relies on rules of thumb known as heuristics.

The availability heuristic is a rule for judging the frequency with which something occurs by noting how easily examples come to mind. The affect heuristic flattens multi-faceted questions into simple questions about one’s feelings, in effect adopting the error called substitution as a deliberate policy. Another unfortunate pattern is the neglecting of background probabilities, also known as “base rates.” Example: Someone who fits the stereotype of a library science major is judged to be one, even when pre-med students are far more common. Finally, Systems 1 and 2 both like to come up with causal explanations for observations, even when the right explanation is that there is no causal explanation—that the observations are due simply to chance.

Regrettably, being error-prone does not make people humble. On the contrary, they minimize the role of luck and overemphasize the role of skill. They make bold predictions and tend to revise their memories to forget past predictions that turned out false. Unfortunately, this means they sometimes hold other people to unreasonable standards—the doctor, coach, or politician who “should have known” how things would turn out. That people are mistaken about the power of expertise (their own and others) can be demonstrated by the relative ease with which simple algorithms can predict the future better than conscientious human experts. Thus, an officer candidate’s future military performance is better predicted by answers to a series of standardized questions than by the judgment of a human examiner after a free-ranging interview.

Another check on a person’s overconfidence comes into play during project planning. Planners do well to compare their own “inside view” of how a project will unfold against “outside view” information of how other, similar projects have gone. (The inside view tends to ignore obstacles that are unknowable ahead of time but sure to come along, in one form or another.)

Having thus far considered human thought as something that results in factual judgments, Kahneman turns to thought that results in choices about what to do. Economics has a well-developed paradigm, called “expected utility theory.” In this model, each possible outcome of a choice situation has a utility (a numerical desirability score), and on that basis, each choice option can be assigned an expected utility. The option chosen is the one whose expected utility is the highest. Kahneman does not find much to criticize about this model as a picture of ideal rationality, but he finds it deficient as a representation of how real human beings think. Kahneman’s alternative, called “prospect theory,” offers a more complex picture of choice. He holds that:

     (1)    People grow attached to a status quo that they treat as a reference point for judging future outcomes.

     (2)    When people contemplate large gains or losses, they are relatively insensitive to small differences in either.

     (3)    When people contemplate large gains or losses, they are relatively insensitive to small differences in either.

Kahneman concludes by considering how people judge an experience, or a life, to be a happy one. It is natural to think that happiness is measured by considering intensity and time, so that a modest level of pleasure over a long period might bring just as much happiness as intense pleasure for a short period. This would be a reasonable way to capture the perspective of the experiencing self, as Kahneman calls it. Our assessments of past experiences are made from the point of view of the remembering self, which, looking back, considers only the most intense part of the experience and the very last part of the experience, largely ignoring the rest, however long it lasted. Perversely, it is the remembering self that not only has the final say about an experience but also decides whether the experience (a particular vacation trip, for instance) is worth repeating in the future. The upshot of this and other puzzles Kahneman discusses is that people are poor judges of what brings them happiness. He ends with a few observations about how societies and organizations might use some of the insights in his book to improve people’s lives.

Previous section Part V. Two Selves (Chapters 35–38 & Conclusions)

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