When you are asked what you are thinking about, you can normally answer. You believe you know what goes on in your mind, which often consists of one conscious thought leading in an orderly way to another. But that is not the only way the mind works, nor indeed is that the typical way. Most impressions and thoughts arise in your conscious experience without your knowing how they got there. The mental work that produces impressions, intuitions, and many decisions goes on in silence in our mind.

The transgressions of politicians are much more likely to be reported than the transgressions of lawyers and doctors. My intuitive impression could be due entirely to journalists’ choices of topics and to my reliance on the available heuristic.

Social scientists in the 1970s broadly accepted 2 ideas about human nature. First, people are generally rational, and their thinking is normally sound. Second, emotions such as fear, affection, and hatred explain most of the occasions on which people depart from rationality. Our article challenged both assumptions without discussing them directly. We documented systematic errors in the thinking of normal people, and we traced these errors to the design of the machinery of cognition rather than to the corruption of thought by emotion.

For several weeks after MJ’s death, for example, it was virtually impossible to find a TV channel reporting on another topic. In contrast, there is little coverage of critical but unexciting issues that provide less drama, such as declining educational standards or over-investment of medical resources in the last year of life.

Together, these impressions prompted what he called a “sixth sense of danger.” He had no idea what was wrong, but he knew something was wrong.

Expert intuition strikes us as magical, but it is not. Indeed, each of us performs feats of intuitive expertise many times each day. Most of us are pitch-perfect in detecting anger in the first word of a telephone call, recognize as we enter a room that we were the subject of the conversation, and quickly react to subtle signs that the driver of the car in the next lane is dangerous.

The psychology of accurate intuition involves no magic. Perhaps the best short statement of it is by the great Herbert Simon, who studied chess masters and showed that after thousands of hours of practice they come to see the pieces on the board differently from the rest of us. “The situation has provided a cue; this cue has given the expert access to information stored in memory, and the information provides the answer. Intuition is nothing more and nothing less than recognition.”

What makes the experiencing self happy is not quite the same as what satisfies the remembering self. How two selves within a single body can pursue happiness raises some difficult questions, both for individuals and for societies that view the well-being of the population as a policy objective.

Carrying out the computation was a strain. You felt the burden of holding much material in memory, as you needed to keep track of where you were and of where you were going, while holding on to the intermediate result. The process was mental work: deliberate, effortful, and orderly — a prototype of slow thinking. The computation was not only an event in your mind; your body was also involved. Your muscles tensed up, your blood pressure rose, and your heart rate increased. Someone looking closely at your eyes while you tackled this problem would have seen your pupils dilate. Your pupils contracted back to normal size as soon as you ended your work — when you found the answer or when you gave up.

The often-used phrase “pay attention” is apt: you dispose of a limited budget of attention that you can allocate to activities, and if you try to go beyond your budget, you will fail. It is the mark of effortful activities that they interfere with each other, which is why it is difficult or impossible to conduct several at once. You can do several things at once, but only if they are easy and undemanding.

Everyone has some awareness of the limited capacity of attention, and our social behavior makes allowances for these limitations. When the driver of a car is overtaking a truck on a narrow road, for example, adult passengers quite sensibly stop talking. They know that distracting the driver is not a good idea, and they also suspect that he is temporarily deaf and will not year what they say.

System 1 runs automatically and System 2 is normally in a comfortable low-effort mode, in which only a fraction of its capacity is engaged. System 1 continuously generates suggestions for System2: impressions, intuitions, intentions, and feelings. If endorsed by System 2, impressions and intuitions turn into beliefs, and impulses turn into voluntary actions. When all goes smoothly, which is most of the time, System 2 adopts the suggestions of System 1 with little or no modification. You generally believe your impressions and act on your desires, and that is fine — usually.

When System 1 runs into difficulty, it calls on System 2 to support more detailed and specific processing that may solve the problem of the moment. System 2 is mobilized when a question arises for which System 1 does not offer an answer. You can also feel a surge of conscious attention whenever you are surprised. System 2 is activated when an event is detected that violates the models of the world that System 1 maintains. Surprise then activates and orients your attention: you will stare, and you will search your memory for a story that makes sense of the surprising event. System 2 is also credited with the continuous monitoring of your own behavior — the control that keeps you polite when you are angry, and alert when you are driving at night. System 2 is mobilized to increased effort when it detects and error about to be made. Remember a time when you almost blurted out an offensive remark and note how hard you worked to restore control. In summary, most of what you (your System 2) think and do originates in your System 1, but System 2 takes over when things get difficult, and it normally has the last word.

The arrangement works well most of the time because System 1 is generally very good at what it does: its models of familiar situations are accurate, its short-term predictions are usually accurate as well, and its initial reactions to challenges are swift and generally appropriate. System 1 has biases, however, systematic errors that it is prone to make in specified circumstances. It sometimes answers easier questions than the one it was asked, and it has little understanding of logic and statistics. One further limitation of System 1 is that it cannot be turned off.

As a way to live your life, however, continuous vigilance is not necessarily good, and it is certainly impractical. Constantly questioning our own thinking would be impossibly tedious, and System 2 is much too slow and inefficient to serve as a substitute for System 1 in making routine decisions. The best we can do is a compromise: learn to recognize situations in which mistakes are likely and try harder to avoid significant mistakes when the stakes are high. The premise of this book is that it is easier to recognize other people’s mistakes than our own.

He also wrote of bazaar shoppers who wear dark glasses in order to hide their level of interest from merchants.

He had noticed that the pupils are sensitive indicators of mental effort — they dilate substantially when people multiply 2-digit numbers, and they dilate more if the problems are hard than if they are easy. His observations indicated that the response to mental effort is distinct from emotional arousal.

As we watched from the corridor, we would sometimes surprise both the owner of the pupil and our guest by asking, “Why did you stop working just now?” The answer from inside the lab was often, “How did you know?” to which we would reply, “We have a window to your soul.”

An image came to mind: mental life — today I would speak of the life of System 2 — is normally conducted at the pace of a comfortable walk, sometimes interrupted by episodes of jogging and on rare occasions by a frantic sprint.

We found that people, when engaged in a mental sprint, may become effectively blind.

Even in modern humans, System 1 takes over in emergencies and assign total priority to self-protective actions. Imagine yourself at the wheel of a car that unexpectedly skids on a large oil slick. You will find that you have responded to the threat before you became fully conscious of it.

In the economy of action, effort is a cost, and the acquisition of skill is driven by the balance of benefits and costs. Laziness is built deep into our nature.

This is not a task you have ever performed before and it will not come naturally to you, but your System 2 can take it on. It will be effortful to set yourself up for this exercise, and effortful to carry it out, though you will surely improve with practice.

Any task that requires you to keep several ideas in mind at the same time has the same hurried character. Unless you have the good fortune of a capacious working memory, you may be forced to work uncomfortably hard. The most effortful forms of slow thinking are those that require you to think fast.

We normally avoid mental overload by dividing our tasks into multiple easy steps, committing intermediate results to long-term memory or to paper rather than to an easily overloaded working memory. We cover long distances by taking our time and conduct our mental lives by the law of least effort.

It is now a well-established proposition that both self-control and cognitive effort are forms of mental work. People who are simultaneously challenged by a demanding cognitive task and by a temptation are more likely to yield to the temptation.

Participants who are instructed to stifle their emotional reaction to an emotionally charged film will later perform poorly on a test of physical stamina — how long they can maintain a strong grip on a dynamometer in spite of increasing discomfort. The emotional effort in the first phase of the experiment reduces the ability to withstand the pain of sustained muscle contraction, and ego-depleted people therefore succumb more quickly to the urge to quit.

The nervous system consumes more glucose than most other parts of the body, and effortful mental activity appears to be especially expensive in the currency of glucose.

The best possible account of the data provides bad news: tired and hungry judges tend to fall back on the easier default position of denying requests for parole. Both fatigue and hunger probably play a role.

Failing these minitests appears to be, at least to some extent, a matter of insufficient motivation, not trying hard enough. These students can solve much more difficult problems when they are not tempted to accept a superficially plausible answer that comes readily to mind. The ease with which they are satisfied enough to stop thinking is rather troubling. “Lazy” is a harsh judgment about the self-monitoring of these young people and their System 2, but it does not seem to be unfair. Those who avoid the sin of intellectual sloth could be called “engaged.” They are more alert, more intellectually active, less willing to be satisfied with superficially attractive answers, more skeptical about their intuitions. Stanovich would call them more rational.

A team of researchers attempted to raise intelligence by improving the control of attention. They found that training attention not only improved executive control; scores on nonverbal tests of intelligence also improved and the improvement was maintained for several months.

His ego was depleted after a long day of meetings. So he just turned to standard operating procedures instead of thinking through the problem.

As is common in science, the first big breakthrough in our understanding of the mechanism of association was an improvement in a method of measurement.

The general theme of these findings is that the idea of money primes individualism: a reluctance to be involved with others, to depend on others, or to accept demands from others. Living in a culture that surrounds us with reminders of money may shape our behavior and our attitudes in ways that we do not know about and of which we may not be proud. Some cultures provide frequent reminders of respect, others constantly remind their members of God, and some societies prime obedience by large images of the Dear Leader. Can there be any doubt that the ubiquitous portraits of the national leader in dictatorial societies not only convey the feeling that “Big Brother is watching” but also lead to an actual reduction in spontaneous thought and independent action?

Questions are probably cropping up in your mind as well: How is it possible fro such trivial manipulations of the context to have such large effects? Do these experiments demonstrate that we are completely at the mercy of whatever primes the environment provides at any moment? Of course not. The effects of the primes are robust but not necessarily large.

The sight of all these people in uniform does not prime creativity.

The world makes much less sense than you think. The coherence comes mostly from the way your mind works.

Conversely, you experience cognitive strain when you read instructions in a poor font, or in faint colors, or worded in complicated language, or when you are in a bad mood, and even when you frown.

A reliable way to make people believe in falsehoods is frequent repetition, because familiarity is not easily distinguished from truth. Authoritarian institutions and marketers have always known this fact. But it was psychologists who discovered that you do not have to repeat the entire statement of a fact or idea to make it appear true. People who were repeatedly exposed to the phrase “the body temperature of a chicken” were more likely to accept as true the statement that “the body temperature of a chicken is 144 degrees”. The familiarity of one phrase in the statement sufficed to make the whole statement feel familiar, and therefore true. If you cannot remember the source of a statement, and have no way to relate it to other things you know, you have no option but to go with the sense of cognitive ease.

If your message is to be printed, use high-quality paper to maximize the contrast between characters and their background. If you use color, you are more likely to be believed if your text is printed in bright blue or red than in middling shades of green, yellow, or pale blue.

If you care about being thought credible and intelligent, do not use complex language where simple language will do. Couching familiar ideas in pretentious language is taken as a sign of poor intelligence and low credibility.

In addition to making your message simple, try to make it memorable. Put your ideas in verse if you can; they will be more likely to be taken as truth.

Stocks with pronounceable trading symbols outperform those with tongue-twisting and they appear to retain a small advantage over some time. Investors believe that stocks with fluent names like Emmi, Swissfirst, and Comet will earn higher returns than those with clunky labels like Geberit and Ypsomed.

Mednick thought he had identified the essence of creativity. His idea was as simple as it was powerful: creativity is associative memory that works exceptionally well.

Mood evidently affects the operation of System 1: when we are uncomfortable and unhappy, we lose touch with our intuition.

These findings add to the growing evidence that good mood, intuition, creativity, gullibility, and increased reliance on System 1 form a cluster. At the other pole, sadness, vigilance, suspicion, an analytic approach, and increased effort also go together. A happy mood loosens the control of System 2 over performance: when in a good mood, people become more intuitive and more creative but also less vigilant and more prone to logical errors. Here again, as in the mere exposure effect, the connection makes biological sense. A good mood is a signal that things are going well, the environment is safe, and it is all right to let one’s guard down. A bad mood indicates that things are not going well, there may be a threat, and vigilance is required. Cognitive ease is both a cause and a consequence of a pleasant feeling.

Let’s not dismiss their business plan just because the font makes it hard to read.

The main function of System 1 is to maintain and update a model of your personal world, which represents what is normal in it. The model is constructed by associations that link ideas of circumstances, events, actions, and outcomes that co-occur with some regularity, either at the same time or within a relatively short interval. As these links are formed and strengthened, the pattern of associated ideas come to represent the structure of events in your life, and it determines your interpretation of the present as well as your expectations of the future.

A capacity for surprise is an essential aspect of our mental life, and surprise itself is the most sensitive indication of how we understand our world and what we expect from it. There are 2 main varieties of surprise. Some expectations are active and conscious — you know you are waiting for a particular event to happen. When the hour is near, you may be expecting the sound of the door as your child returns from school; when the door opens you expect the sound of a familiar voice. You will be surprised if an actively expected event does not occur. But there is a much larger category of events that you expect passively; you don’t wait for them, but you are not surprised when they happen. These are events that are normal in a situation, though not sufficiently probable to be actively expected.

The commonly accepted wisdom was that we infer physical causality from repeated observations of correlations among events.

The prominence of causal intuitions is a recurrent theme in this book because people are prone to apply causal thinking inappropriately, to situations that require statistical reasoning. Statistical thinking derives conclusions about individual cases from properties of categories and ensembles. Unfortunately, System 1 does not have the capability for this mode of reasoning; System 2 can learn to think statistically, but few people receive the necessarily training.

System 1 does not keep track of alternatives that it rejects, or even of the fact that there were alternatives. Conscious doubt is not in the repertoire of System 1; it requires maintaining incompatible interpretations in mind at the same time, which demands mental effort. Uncertainty and doubt are the domain of System 2.

Gilbert proposed that understanding a statement must begin with an attempt to believe it: you must first know what the idea would mean if it were true. Only then can you decide whether or not to unbelieve it. The initial attempt to believe is an automatic operation of System 1, which involves the construction of the best possible interpretation of the situation.

When System 2 is otherwise engaged, we will believe almost anything. System 1 is gullible and biased to believe, System 2 is in charge of doubting and unbelieving, but System 2 is sometimes busy, and often lazy. Indeed, there is evidence that people are more likely to be influenced by empty persuasive messages, such as commercials, when they are tired and depleted.

The operation of associative memory contribute to a general confirmation bias. When asked, “Is Sam friendly?” different instances of Sam’s behavior will come to mind than would if you had been asked “Is Sam unfriendly?” A deliberate search for confirming evidence, known as positive test strategy, is also how System 2 tests a hypothesis.

If you like the president’s politics, you probably like his voice and his appearance as well. The tendency to like (or dislike) everything about a person — including things you have not observed — is known as the halo effect.

The sequence in which we observe characteristics of a person is often determined by chance. Sequence matters, however, because the halo effect increases the weight of first impressions, sometimes to the point that subsequent information is mostly wasted.

I began to suspect that my grading exhibited a halo effect, and that the first question I scored has a disproportionate effect on the overall grade.

When I was disappointed with a student’s second essay and went to the back page of the booklet to enter a poor grade, I occasionally discovered that I had given a top grade to the same student’s first essay. I also noticed that I was tempted to reduce the discrepancy by changing the grade that I had not yet written down, and found it hard to follow the simple rule of never yielding to that temptation. The lack of coherence left me uncertain and frustrated.

Furthermore, participants who saw one-sided evidence were more confident of their judgments than those who saw both sides. This is just what you would expect if the confidence that people experience is determined by the coherence of the story they manage to construct from available information. It is the consistency of the information that matters for a good story, not its completeness. Indeed, you will often find that knowing little makes it easier to fit everything you know into a coherent pattern.

They didn’t want more information that might spoil their story.

System 1 has been shaped by evolution to provide a continuous assessment of the main problems that an organism must solve to survive: How are things going? Is there a threat or a major opportunity? Is everything normal? Should I approach or avoid? Situations are constantly evaluated as good or bad, requiring escape or permitting approach. Good mood and cognitive ease are the human equivalents of assessments of safety and familiarity.

We are endowed with an ability to evaluate, in a single glance at a stranger’s face, 2 potentially crucial facts about that person: how dominant (and therefore potentially threatening) he is, and how trustworthy he is, whether his intentions are more likely to be friendly or hostile.

People judge competence by combining the 2 dimensions of strength and trustworthiness. The faces that exude competence combine a strong chin with a slight confident—appearing smile.

Because System 1 represents categories by a prototype or a set of typical exemplars, it deals well with averages but poorly with sums. The size of the category, the number of instances it contains, tends to be ignored in judgments of what I will call sum-like variables.

Evaluating people as attractive or not is a basic assessment. You do that automatically whether or not you want to, and it influences you.

There are circuits in the brain that evaluate dominance from the shape of the face. He looks the part for a leadership role.

A remarkable aspect of your mental life is that you are rarely stumped. True, you occasionally face a question such as 17 x 24 = ? to which no answer comes immediately to mind, but these dumbfounded moments are rare. The normal state of your mind is that you have intuitive feelings and opinions about almost everything that comes your way. You like or dislike people long before you know much about them; you trust or distrust strangers without knowing why; you feel that an enterprise is bound to succeed without analyzing it. Whether you state them or not, you often have answers to questions that you do not completely understand, relying on evidence that you can neither explain nor defend.

Do we still remember the question we are trying to answer? Or have we substituted an easier one?

Characteristics of System 1:

  • Generate impressions, feelings, an inclinations; when endorsed by System 2 these become beliefs, attitudes, and intentions.
  • Operates automatically and quickly, with little or no effort, and no sense of voluntary control.
  • Can be programmed by System 2 to mobilize attention when a particular pattern is detected (search).
  • Executes skilled responses and generates skilled intuitions, after adequate training.
  • Creates a coherent pattern of activated ideas in associative memory.
  • Links a sense of cognitive ease to illusions of truth, pleasant feelings, and reduced vigilance.
  • Distinguishes the surprising from the normal.
  • Infers and invents causes and intentions.
  • Neglects ambiguity and suppresses doubt.
  • Is biased to believe and confirm.
  • Exaggerates emotional consistency (halo effect).
  • Focuses on existing evidence and ignores absent evidence.
  • Generates a limited set of basic assessments.
  • Represents sets by norms and prototypes, does not integrate.
  • Matches intensities across scales (e.g., size to loudness).
  • Computes more than intended (mental shotgun).
  • Sometimes substitutes an easier question for a difficult one (heuristics).
  • Is more sensitive to changes than to states (prospect theory).
  • Overweights low probabilities.
  • Shows diminishing sensitivity to quantity (psychophysics).
  • Responds more strongly to losses than to gains (loss aversion).
  • Frames decision problems narrowly, in isolation from one another.

I had routinely chosen samples that were too small and had often obtained results that made no sense. My mistake was particularly embarrassing because I taught statistics and knew how to compute the sample size that would reduce the risk of failure to an acceptable level.

The associative machinery seeks causes. The difficulty we have with statistical regularities is that they call for a different approach. Instead of focusing on how the event at hand came to be, the statistical view relates it to what could have happened instead. Nothing in particular caused it to be what it is — chance selected it from among its alternatives.

Our predilection for causal thinking exposes us to serious mistakes in evaluating the randomness of truly random events.

This probably makes intuitive sense to you. It is easy to construct a causal story that explains how small schools are able to provide superior education and thus produce high-achieving scholars by giving them more personal attention and encouragement than they could get in larger schools. Unfortunately, the causal analysis is pointless because the facts are wrong. The truth is that small schools are not better on average; they are simply more variable.

The professionals were almost as susceptible to anchoring effects as business school students with no real-estate experience, whose anchoring index was 48%. The only difference was that the students conceded that they were influenced by the anchor, while the professionals denied that influence.

My advice to students when I taught negotiations was that if you think the other side has made an outrageous proposal, you should not come back with an equally outrageous counteroffer, creating a gap that will be difficult to bridge in further negotiations. Instead you should make a sense, storm out or threaten to do so, and make it clear — to yourself as well as to the other side — that you will not continue the negotiation with that number on the table.

The participants who have been exposed to random or absurd anchors (such as Gandhi’s death at age 144) confidently deny that this obviously useless information could have influenced their estimate, and they are wrong.

The gist of the message is the story, which is based on whatever information is available, even if the quantity of the information is slight and its quality is poor. Whether the story is true, or believable, matters little, if at all. The powerful effect of random anchors is an extreme case of this phenomenon, because a random anchor obviously provides no information at all.

Plans are best-case scenarios. Let’s avoid anchoring on plans when we forecast actual outcomes. Thinking about ways the plan could go wrong is one way to do it.

Our aim in the negotiation is to get them anchored on this number.

The defendant’s lawyers put in a frivolous reference in which they mentioned a ridiculously low amount of damages, and they got the judge anchored on it.

A dramatic event temporarily increases the availability of its category. A plane crash that attracts media coverage will temporarily alter your feelings about the safety of flying. Accidents are on your mind, for a while, after you see a car burning at the side of the road, and the world is for a while a more dangerous place.

Personal experiences, pictures, and vivid examples are more available than incidents that happened to others, or mere words, or statistics.

Maintaining one’s vigilance against biases is a chore — but the chance to avoid a costly mistake is sometimes worth the effort.

Frowning normally accompanies cognitive strain and the effect is symmetric: when people are instructed to frown while doing a task, they actually try harder and experience greater cognitive strain.

Availability effects help explain the pattern of insurance purchase and protective action after disaster.

As long ago as pharaonic Egypt, societies have tracked the high-water mark of rivers that periodically flood — and have always prepared accordingly, apparently assuming that floods will not rise higher than the existing high-water mark. Images of a worse disaster do not come easily to mind.

The coverage is itself biased toward novelty and poignancy. The media do not just shape what the public is interested in, but also are shaped by it. Editors cannot ignore the public’s demands that certain topics and viewpoints receive extensive coverage. Unusual events attract disproportionate attention and are consequently perceived as less unusual than they really are. The world in our heads is not a precise replica of reality; our expectations about the frequency of events are distorted by the prevalence and emotional intensity of the messages to which we are exposed.

An inability to be guided by a “healthy fear” of bad consequences is a disastrous flaw.

In his desire to wrest sole control of risk policy from experts, Slovic has challenged the foundation of their expertise: the idea that risk is objective.

“Risk” does not exist “out there,” independent of our minds and culture, waiting to be measured. Human beings have invented the concept of “risk” to help them understand and cope with the dangers and uncertainties of life. Although these dangers are real, there is no such thing as “real risk” or “objective risk.”

Availability cascades are real and they undoubtedly distort priorities in the allocation of public resources. Sunstein would seek mechanisms that insulate decision makers from public pressures, letting the allocation of resources be determined by impartial experts who have a broad view of all risks and of the resources available to reduce them. Slovic trusts the experts much less and the public somewhat more than Sunstein does, and he points out that insulating the experts from the emotions of the public produces policies that the public will reject — an impossible situation in a democracy. Both are eminently sensible, and I agree with both.

I share Sunstein’s discomfort with the influence of irrational fears and availability cascades on public policy in the domain of risk. However, I also share Slovic’s belief that widespread fears, even if they are unreasonable, should not be ignored by policy makers. Rational or not, fear is painful and debilitating, and policy makers must endeavor to protect the public from fear, not only from real dangers.

There are 2 possible reasons for the failure of System 2 — ignorance or laziness.

To be useful, your beliefs should be constrained by the logic of probability.

Bayes’s rule specifies how prior beliefs should be combined with the diagnosticity of the evidence, the degree to which it favors the hypothesis over the alternative.

The essential keys to disciplined Bayesian reasoning can be simply summarized:

  • Anchor your judgment of the probability of an outcome on a plausible base rate.
  • Question the diagnosticity of your evidence.

Both ideas are straightforward. It came as a shock to me when I realized that I was never taught how to implement them, and that even now I find it unnatural to do so.

As expected, probability judgments were higher for the richer and more detailed scenario, contrary to logic. This is a trap for forecasters and their clients: adding detail to scenarios makes them more persuasive, but less likely to come true.

If you visit a courtroom you will observe that lawyers apply 2 styles of criticism: to demolish a case they raise doubts about the strongest arguments that favor it; to discredit a witness, they focus on the weakest part of the testimony.

They added a cheap gif to the expensive product, and made the whole deal less attractive. Less is more in this case.

On many occasions I have praised flight cadets for clean execution of some aerobatic maneuver. The next time they try the same maneuver they usually do worse. On the other hand, I have often screamed into a cadet’s earphone for bad execution, and in general he does better upon his next try. So please don’t tell us that reward works and punishment does not, because the opposite is true.

What he had observed is known as regression to the mean, which in that case was due to random fluctuations in the quality of performance. Naturally, he praised only a cadet whose performance was far better than average. But the cadet was probably just lucky on that particular attempt and therefore likely to deteriorate regardless of whether or not he was praised. Similarly, the instructor would shout into a cadet’s earphones only when the cadet’s performance was unusually bad.

Overconfidence and the pressure of meeting high expectations are often offered as explanations. But there is a simpler account of the jinx: an athlete who gets to be on the cover of Sports Illustrated must have performed exceptionally well in the preceding season, probably with the assistance of a nudge from luck — and luck is fickle.

Norway had a great first jump; he will be tense, hoping to protect his lead and will probably do worse.

Sweden had a bad first jump and now he knows he has nothing to lose and will be relaxed, which should help him do better.

If the topic of regression comes up in a criminal or civil trial, the side that must explain regression to the jury will lose the case. Why is it so hard? The main reason for the difficulty is a recurrent them of this book: our mind is strongly biased toward causal explanations and does not deal well with “mere statistics.” When our attention is called to an event, associative memory will look for its cause — more precisely, activation will automatically spread to any cause that is already stored in memory. Regression to the mean has an explanation but does not have a cause.

The effort is justified only when the stakes are high and when you are particularly keen not to make mistakes. Furthermore, you should know that correcting your intuitions may complicate your life. A characteristic of unbiased predictions is that they permit the prediction of rare or extreme events only when the information is very good. If you expect your predictions to be of modest validity, you will never guess an outcome that is either rare or far from the mean. If your predictions are unbiased, you will never have the satisfying experience of correctly calling an extreme case.

Extreme predictions and a willingness to predict rare events from weak evidence are both manifestations of System 1. It is natural for the associative machinery to match the extremeness of predictions to the perceived extremeness of evidence on which it is based — this is how substitution works. And it is natural for System 1 to generate overconfident judgments, because confidence, as we have seen, is determined by the coherence of the best story you can tell from the evidence at hand.

Regression is also a problem for System 2. The very idea of regression to the mean is alien and difficult to communicate and comprehend. We will not learn to understand regression from experience. Even when a regression is identified, as we saw in the story of the flight instructors, it will be given a causal interpretation that is almost always wrong.

Narrative fallacies arise inevitably from our continuous attempt to make sense of the world. The explanatory stories that people find compelling are simple; are concrete rather than abstract; assign a larger role to talent, stupidity, and intentions than to luck; and focus on a few striking events that happened rather than on the countless events that failed to happen.

A compelling narrative fosters an illusion of inevitability.

Fleshed out in more detail, the story could give you the sense that you understand what made Google succeed; it would also make you feel that you have learned a valuable general lesson about what makes businesses succeed. Unfortunately, there is good reason to believe that your sense of understanding and learning from the Google story is largely illusory. The ultimate test of an explanation is whether it would have made the event predictable in advance.

You build the best possible story from the information available to you, and if it is a good story, you believe it. Paradoxically, it is easier to construct a coherent story when you know little, when there are fewer pieces to fit into the puzzle. Our comforting conviction that the world makes sense rests on a secure foundation: our almost unlimited ability to ignore our ignorance.

The core of the illusion is that we believe we understand the past, which implies that the future also should be knowable, but in fact we understand the past less than we believe we do.

The mind that makes up narratives about the past is a sense-making organ. When an unpredicted event occurs, we immediately adjust our view of the world to accommodate the surprise. Learning from surprises is a reasonable thing to do, but it can have some dangerous consequences.

A general limitation of the human mind is its imperfect ability to reconstruct past states of knowledge, or beliefs that have changed. Once you adopt a new view of the world (or of any part of it), you immediately lose much of your ability to recall what you used to believe before your mind changed.

The tendency to revise the history of one’s beliefs in light of what actually happened produces a robust cognitive illusion.

Hindsight bias has pernicious effects on the evaluations of decision makers. It leads observers to assess the quality of a decision not by whether the process was sound but by whether its outcome was good or bad.

Hindsight is especially unkind to decision makers who act as agents for others — physicians, financial advisers, CEOs, social workers, diplomats, politicians. We are prone to blame decision makers for good decisions that worked out badly and to give them too little credit for successful moves that appear obvious only after the fact. When the outcomes are bad, the clients often blame their agents for not seeing the handwriting on the wall — forgetting that it was written in invisible ink that became legible only afterward.

Because adherence to SOPs is difficult to second-guess, decision makers who expect to have their decisions scrutinized with hindsight are driven to bureaucratic solutions — and to an extreme reluctance to take risks. As malpractice litigation became more common, physicians changed their procedures in multiple ways: ordered more tests, referred more cases to specialists, applied conventional treatments even when they were unlikely to help. Increased accountability is a mixed blessing.

The sense-making machinery of System 1 makes us see the world as more tidy, simple, predictable, and coherent than it really is. The illusion that one has understood the past feeds the further illusion that one can predict and control the future. These illusions are comforting. The reduce the anxiety that we would experience if we allowed ourselves to fully acknowledge the uncertainties of existence. We all have a need for the reassuring message that actions have appropriate consequences, and that success will reward wisdom and courage. Many businessbooks are tailor-made to satisfy this need.

Consumers have a hunger for a clear message about the determinants of success and failure in business, and they need stories that offer a sense of understanding, however illusory.

He’s learning too much from this success story, which is too tidy. He has fallen for a narrative fallacy.

We saw who seemed to be stubborn, submissive, arrogant, patient, hot-tempered, persistent, or a quitter. We sometimes saw competitive spite when someone whose idea had been rejected by the group no longer worked very hard. And we saw reactions to crisis: who berated a comrade whose mistake had caused the whole group to fail, who stepped forward to lead when the exhausted team had to start over. Under the stress of the event, we felt, each man’s true nature revealed itself. Our impression of each candidate’s character was as direct and compelling as the color of the sky.

Confidence is a feeling, which reflects the coherence of the information and the cognitive ease of processing. It is wise to take admissions of uncertainty seriously, but declarations of high confidence mainly tell you that an individual has constructed a coherent story in his mind, not necessarily that the story is true.

Since then, my questions about the stock market have hardened into a larger puzzle: a major industry appears to be built largely on an illusion of skill. What makes them believe they know more about what the price should be than the market does? For most of them, that belief is an illusion.

If all assets in a market are correctly priced, no one can expect either to gain or to lose by trading. Perfect prices leave no scope for cleverness, but they also protect fools from their own folly. Many individual investors lose consistently by trading, an achievement that a dart-throwing chimp could not match.

It is important to remember that this is a statement about averages: some individuals did much better, others did much worse. However, it is clear that for the large majority of individual investors, taking a shower and doing nothing would have been a better policy than implementing the ideas that came to their minds. The most active traders had the poorest results, while the investors who traded the least earned the highest returns. Men acted on their useless ideas significantly more often than women, and that as a result women achieved better investment results than men.

Individual investors like to lock in their gains by selling “winners,” stocks that have appreciated since they were purchased, and they hang on to their losers. They also buy the wrong stocks. Individual investors predictably flock to companies that draw their attention because they are in the news. Professional investors are more selective in responding to news.

Although professionals are able to extract a considerable amount of wealth from amateurs, few stock pickers, if any, have the skill needed to beat the market consistently, year after year. Professional investors, including fund managers, fail a basic test of skill: persistent achievement. The diagnostic for the existence of any skill is the consistency of individual differences in achievement.

All this is serious work that requires extensive training, and the people who do it have the immediate (and valid) experience of using these skills. Unfortunately, skill in evaluating the business prospects of a firm is not sufficient for successful stock trading, where the key question is whether the information about the firm is already incorporated in the price of its stock. Traders apparently lack the skill to answer this crucial question, but they appear to be ignorant of their ignorance. As I had discovered from watching cadets on the obstacle field, subjective confidence of traders is a feeling, not a judgment.

Finally, the illusions of validity and skill are supported by a powerful professional culture. We know that people can maintain an unshakable faith in any proposition, however absurd, when they are sustained by a community of like-minded believers. Given the professional culture of the financial community, it is not surprising that large numbers of individuals in that world believe themselves to be among the chosen few who can do what they believe others cannot.

The often-used image of the “march of history” implies order and direction.

Yet the illusion of valid prediction remains intact, a fact that is exploited by people whose business is prediction — not only financial experts but pundits in business and politics, too. TV and radio stations and newspapers have their panels of experts whose job it is to comment on the recent past and foretell the future. Viewers and readers have the impression that they are receiving information that is somehow privileged, or at least extremely insightful. And there is no doubt that the pundits and their promoters genuinely believe they are offering such information.

The results were devastating. The experts performed worse than they would have if they had simply assigned equal probabilities to each of the 3 potential outcomes. Even in the region they knew best, experts were not significantly better than nonspecialists.

Experts resisted admitting that they had been wrong, and when they were compelled to admit error, they had a large collection of excuses: they had been wrong only in their timing, an unforeseeable event had intervened, or they had been wrong but for the right reasons. Experts are just human in the end. They are dazzled by their own brilliance and hate to be wrong.

She is a hedgehog. She has a theory that explains everything, and it gives her the illusion that she understands the world.

The question is not whether these experts are well trained. It is whether their world is predictable.

Why are experts inferior to algorithms? One reason is that experts try to be clever, think outside the box, and consider complex combinations of features in making their predictions. Complexity may work in the odd case, but more often than not it reduces validity. Simple combinations of features are better. Several studies have shown that human decision makers are inferior to a prediction formula even when they are given the score suggested by the formula! They feel that they can overrule the formula because they have additional information about the case, but they are wrong more often than not.

The widespread inconsistency is probably due to the extreme context dependency of System 1. We know from studies of priming that unnoticed stimuli in our environment have substantial influence on our thoughts and actions. These influences fluctuate from moment to moment. The brief pleasure of a cool breeze on a hot day may make you slightly more positive and optimistic about whatever you are evaluating at the time. Because you have little direct knowledge of what goes on in your mind, you will never know that you might have made a different judgment or reached a different decision under very slightly different circumstances. Formulas do not suffer from such problems. Given the same input, they always return the same answer.

A Checklist Manifesto provides many other examples of the virtues of checklists and simple rules.

The story of a child dying because an algorithm made a mistake is more poignant than the story of the same tragedy occurring as a result of human error, and the difference in emotional intensity is readily translated into a moral preference.

I learned from this finding a lesson that I have never forgotten: intuition adds value even in the justly derided selection interview, but only after a disciplined collection of objective information and disciplined scoring of separate traits. I set a formula that gave the “close your eyes” evaluation the same weight as the sum of the 6 trait ratings. A more general lesson that I learned from this episode was do not simply trust intuitive judgment — your own or that of others — but do not dismiss it, either.

Whenever we can replace human judgment by a formula, we should at least consider it.

He thinks his judgments are complex and subtle, but a simple combination of scores could probably do better.

I have always thought that these exchanges are a waste of time. Especially when the original critique is sharply worded, the reply and the rejoinder are often exercises in what I have called sarcasm for beginners and advanced sarcasm. The replies rarely concede anything to a biting critique, and it is almost unheard of for a rejoinder to admit that the original critique was misguided or erroneous in any way.

The situation has provided a cue; this cue has given the expert access to information stored in memory, and the information provides the answer. Intuition is nothing more and nothing less than recognition.

This strong statement reduces the apparent magic of intuition to the everyday experience of memory.

The moral of Simon’s remark is that the mystery of knowing without knowing is not a distinctive feature of intuition; it is the norm of mental life.

What Pavlov’s dogs learned can be described as a learned hope. Learned fears are even more easily acquired.

An expert player can understand a complex position at a glance, but it takes years to develop that level of ability. Studies of chess masters have shown that at least 10K hours of dedicated practice (about 6 years of playing chess 5 hours a day) are required to attain the highest levels of performance. During those hours of intense concentration, a serious chess player becomes familiar with thousands of configurations, each consisting of an arrangement of related pieces that can threaten or defend each other.

Learning high-level chess can be compared to learning to read. A first grader works hard at recognizing individual letters and assembling them into syllables and words, but a good adult reader perceives entire clauses. An expert reader has also acquired the ability to assemble familiar elements in a new pattern and can quickly “recognize” and correctly pronounce a word that she has never seen before. In chess, recurrent patterns of interacting pieces play the role of letters, and a chess position is a long word or a sentence.

Acquiring expertise in chess is harder and slower than learning to read because there are many more letters in the “alphabet” of chess and because the “words” consist of many letters. After thousands of hours of practice, however, chess masters are able to read a chess situation at a glance. The few moves that come to their mind are almost always strong and sometimes creative. They can deal with a “word” they have never encountered, and they can find a new way to interpret a familiar one.

2 basic conditions for acquiring a skill:

  • An environment that is sufficiently regular to be predictable
  • An opportunity to learn these regularities through prolonged practice

Whether professionals have a chance to develop intuitive expertise depends essentially on the quality and speed of feedback, as well as on sufficient opportunity to practice.

In a less regular, or low-validity, environment, the heuristics of judgment are invoked. System 1 is often able to produce quick answers to difficult questions by substitution, creating coherence where there is none. The question that is answered is not the one that was intended, but the answer is produced quickly and may be sufficiently plausible to pass the lax and lenient review of System 2. You may want to forecast the commercial future of a company, for example, and believe that this is what you are judging, while in fact your evaluation is dominated by your impressions of the energy and competence of its current executives. Subjective confidence is not a good diagnostic of accuracy: judgments that answer the wrong question can also be made with high confidence.

It is difficult to reconstruct what it was that took us years, long hours of discussion, endless exchanges of draft and hundreds of emails negotiating over words, and more than once almost giving up. But this is what always happens when a project ends reasonably well: once you understand the main conclusion, it seems it was always obvious.

How much expertise does she have in this particular task? How much practice has she had?

Extrapolating was a mistake. We were forecasting based on the information in front of us but the chapters we wrote first were probably easier than others, and our commitment to the project was probably then at its peak. But the main problem was that we failed to allow for what Donald Rumsfeld famously called the “unknown unknowns.” There was no way for us to foresee, that day, the succession of events that would cause the project to drag out for so long. The divorces, the illnesses, the crises of coordination with bureaucracies that delayed the work could not be anticipated. Such events not only cause the writing of chapters to slow down, they also produce long periods during which little or no progress is made at all.

This is a common pattern: people who have information about an individual case rarely feel the need to know the statistics of the class to which the case belongs.

Amos and I coined the term planning fallacy to describe plans and forecasts that:

  • are unrealistically close to best-case scenarios
  • could be improved by consulting the statistics of similar cases

The optimism of planners and decision makers is not the only cause of overruns. Contractors of kitchen renovations and of weapon systems readily admit (though not to their clients) that they routinely make most of their profit on additions to the original plan. The failures of forecasting in these cases reflect the customers’ inability to imagine how much their wishes will escalate over time. They end up paying much more than they would if they had made a realistic plan and stuck to it.

The may also wish to estimate the budget reserve that they need in anticipation of overruns, although such precautions often become self-fulfilling prophecies. A budget reserve is to contractors as red meat is to lions, and they will devour it.

In this view, people often (but not always) take on risky projects because they are overly optimistic about the odds they face. It probably contributes to an explanation of why people litigate, why they start wars, and why they open small businesses.

I came off quite well in my telling of the story, in which I had the role of clever questioner and astute psychologist. I only recently realized that I had actually played the roles of chief dunce and inept leader.

Optimistic individuals play a disproportionate role in shaping our lives. Their decisions make a difference; they are the inventors, the entrepreneurs, the political and military leaders — not average people. They got to where they are by seeking challenges and taking risks. They are talented and they have been lucky, almost certainly luckier than they acknowledge. They are probably optimistic by temperament; entrepreneurs are more sanguine than midlevel managers about life in general. Their experiences of success have confirmed their faith in their judgment and in their ability to control events. Their self-confidence is reinforced by the admiration of others. This reasoning leads to a hypothesis: the people who have the greatest influence on the lives of others are likely to be optimistic and overconfident, and to take more risks than they realize.

Because they misread the risks, optimistic entrepreneurs often believe they are prudent, even when they are not. Their confidence in their future success sustains a positive mood that helps them obtain resources from others, raise the morale of their employees, and enhance their prospects of prevailing. When action is needed, optimism, even of the mildly delusional variety, may be a good thing.

The damage caused by overconfident CEOs is compounded when the business press anoints them as celebrities; the evidence indicates that prestigious press awards to the CEO are costly to stockholders.

However, optimism is highly valued, socially and in the market; people and firms reward the providers of dangerously misleading information than they reward truth tellers. One of the lessons of the financial crisis that led to the Great Recession is that there are periods in which competition, among experts and among organizations, create powerful forces that favor a collective blindness to risk and uncertainty.

Generally, it is considered a weakness and a sign of vulnerability for clinicians to appear unsure. Confidence is valued over uncertainty and there is a prevailing censure against disclosing uncertainty to patients. Experts who acknowledge the full extent of their ignorance may expect to be replaced by more confident competitors, who are better able to gain the trust of clients.

Extreme uncertainty is paralyzing under dangerous circumstances, and the admission that one is merely guessing is especially unacceptable when the stakes are high. Acting on pretended knowledge is often the preferred solution.

There is no evidence that risk takers in the economic domain have an unusual appetite for gambles on high stakes; they are merely less aware of risks than more timid people are.

I have yet to meet a successful scientist who lacks the ability to exaggerate the importance of what he or she is doing, and I believe that someone who lacks a delusional sense of significance will wilt in the face of repeated experiences of multiple small failures and rare successes, the fate of most researchers.

The agent of economic theory is rational, selfish, and his tastes do not change.

His idea was straightforward: people’s choices are based not on dollar values but on the psychological values of outcomes, their utilities. The psychological value of a gamble is therefore not weighted average of its possible dollar outcomes; it is the average of the utilities of these outcomes, each weighted by its probability.

His utility function explained why poor people buy insurance and why rich people sell it to them.

The errors of a theory are rarely found in what it asserts explicitly; they hide in what it ignores or tacitly assumes.

The mystery is how a conception of the utility of outcomes that is vulnerable to such obvious counterexamples survived for so long. I can explain it only by a weakness of the scholarly mind that I have often observed in myself. I call it theory-induced blindness: once you have accepted a theory and used it as a tool in your thinking, it is extraordinarily difficult to notice its flaws. If you come upon an observation that does not seem to fit the model, you assume that there must be a perfectly good explanation that you are somehow missing. You give the theory the benefit of the doubt, trusting the community of experts who have accepted it.

Disbelieving is hard work, and System 2 is easily tired.

We were not the first to notice that people become risk seeking when all their options are bad, but theory-induced blindness had prevailed.

Lose $900 for sure or 90% chance to lose $1K.

The reason you like the idea of gaining $100 and dislike the idea of losing $100 is not that these amounts change your wealth. You just like winning and dislike losing — and you almost certainly dislike losing more than you like winning.

Organisms that treat threats as more urgent than opportunities have a better chance to survive and reproduce.

Professional risk takers in the financial markets are more tolerant of losses, probably because they do not respond emotionally to every fluctuation. When participants in an experiment were instructed to “think like a trader,” they became less loss averse and their emotional reaction to losses was sharply reduced.

Richer and more realistic assumptions do not suffice to make a theory successful. Scientists use theories as a bag of working tools, and they will not take on the burden of a heavier bag unless the new tool are very useful.

Some version of this figure has appeared in every economics textbook written in the last 100 years, and many millions of students have stared at it. Few have noticed what is missing. Here again, the power and elegance of a theoretical model have blinded students and scholars to a serious deficiency.

For a rational agent, the buying price is irrelevant history — the current market value is all that matters. Not so for humans in a down market for housing. Owners have a high reference point and thus face higher losses set a higher price on their dwelling, spend a longer time trying to sell their home, and eventually receive more money.

A single cockroach will completely wreck the appeal of a bowl of cherries, but a cherry will do nothing at all for a bowl of cockroaches.

Economic logic implies that cabdrivers should work many hours on rainy days and treat themselves to some leisure on mild days, when they can “buy” leisure at a lower price. The logic of loss aversion suggests the opposite: drivers who have a fixed daily target will work many more hours when the pickings are slim and go home early when rain-drenched customers are begging to be taken somewhere.

This reform will not pass. Those who stand to lose will fight harder than those who stand to gain.

Many unfortunate human situations unfold in the top right cell. This is where people who face very bad options take desperate gambles, accepting a high probability of making things worse in exchange for a small hope of avoiding a large loss. Risk taking of this kind often turns manageable failures into disasters.

The shoe is now on the other foot: the plaintiff is willing to gamble and the defendant wants to be safe. Plaintiffs with frivolous claims are likely to obtain a more generous settlement than the statistics of the situation justify.

When I think of the small urn, I see a single red marble on a vaguely defined background of white marbles. When I think of the larger urn, I see 8 winning red marbles on an indistinct background of white marbles, which creates a more hopeful feeling.

Most Californians have never experienced a major earthquake, and in 2007 no banker had personally experienced a devastating financial crisis.

We shouldn’t focus on a single scenario, or we will overestimate its probability. Let’s set up specific alternatives and make the probabilities add up to 100%.

The emotional evaluation of “sure gain” and “sure loss” is an automatic reaction of System 1, which certainly occurs before the more effortful (and optional) computation of the expected values of the 2 gambles.

This advice is not impossible to follow. Experienced traders in financial markets live by it every day, shielding themselves from the pain of losses by broad framing. We now know that experimental subjects could be almost cured of their loss aversion by inducing them to “think like a trader.” The instructions for broad framing of a decision included the phrases “imagine yourself as a trader,” “you do this all the time,” and “treat it as one of many monetary decisions, which will sum together to produce a portfolio.” Broad framing blunted the emotional reaction to losses and increased the willingness to take risks.

Closely following daily fluctuations is a losing proposition, because the pain of the frequent small losses exceeds the pleasure of the equally frequent small gains. Once a quarter is enough, and may be more than enough for individual investors.

Except for the very poor, for whom income coincides with survival, the main motivators of money-seeking are not necessarily economic. For the billionaire looking for the extra billion, and indeed for the participant in an experimental economics project looking for the extra dollar, money is a proxy for points on a scale of self-regard and achievement. These rewards and punishments, promises and threats, are all in our heads. We carefully keep score of them. They shape our preferences and motivate our actions, like the incentives provided in the social environment. As a result, we refuse to cut losses when doing so would admit failure, we are biased against actions that could lead to regret, and we draw an illusory but sharp distinction between omission and commission, not doing and doing, because the sense of responsibility is greater for one than for the other. The ultimate currency that rewards or punishes is often emotional, a form of mental self-dealing that inevitably creates conflicts of interest when the individual acts as an agent on behalf of an organization.

An Econ would realize that the ticket has already been paid for and cannot be returned. Its cost is “sunk” and the Econ would not care whether he had bought the ticket to the game or got it from a friend. To implement this rational behavior, System 2 would have to be aware of the counterfactual possibility: “Would I still drive into this snowstorm if I had gotten the ticket free from a friend?” It takes an active and disciplined mind to raise such a difficult question.

If the problem is frame as a choice between giving yourself pleasure and causing yourself pain, you will certainly sell Blueberry Tiles and enjoy your investment prowess. As might be expected, finance research has documented a massive preference for selling winners rather than losers — a bias that has been given an opaque label: the disposition effect.

The disposition effect is an instance of narrow framing. The investor has set up an account for each share that she bought, and she wants to close every account as a gain. A rational agent would have a comprehensive view of the portfolio and sell the stock that is least likely to do well in the future, without considering whether it is a winner or a loser.

A rational decision maker is interested only in the future consequences of current investments. Justifying earlier mistakes is not among the Econ’s concerns. The decision to invest additional resources in a losing account, when better investments are available, is known as the sunk-cost fallacy, a costly mistake that is observed in decisions large and small. Driving into the blizzard because one paid for tickets is a sunk-cost error.

Canceling the project will leave a permanent stain on the executive’s record, and his personal interests are perhaps best served by gambling further with the organization’s resources in the hope of recouping the original investment — or at least in an attempt to postpone the day of reckoning.

Regret is accompanied by feelings that one should have known better, by a sinking feeling, by thoughts about the mistake one has made and the opportunities lost, by a tendency to kick oneself and to correct one’s mistake, and by wanting to undo the event and to get a second chance. Intense regret is what you experience when you can most easily imagine yourself doing something other than what you did.

People expect to have stronger emotional reactions (including regret) to an outcome that is produced by action than to the same outcome when it is produced by inaction. This has been verified in the context of gambling: people expect to be happier if they gamble and win than if they refrain from gambling and get the same amount. The asymmetry is at least as strong for losses, and it applies to blame as well as to regret. The key is not the difference between commission and omission but the distinction between default options and actions that deviate from the default. When you deviate from the default, you can easily imagine the norm — and if the default is associated with bad consequences, the discrepancy between the two can be the source of painful emotions.

Consumers who are reminded that they may feel regret as a result of their choices show an increased preference for conventional options, favoring brand names over generics. The behavior of the managers of financial funds as the year approaches its end also shows an effect of anticipated evaluation: they tend to clean up their portfolios of unconventional and otherwise questionable stocks.

We spend much of our day anticipating, and trying to avoid, the emotional pains we inflict on ourselves. How seriously should we take these intangible outcomes, the self-administered punishment (and occasional rewards) that we experience as we score our lives? Econs are not supposed to have them, and they are costly to Humans. They lead to actions that are detrimental to the wealth of individuals, to the soundness of policy, and to the welfare of society. But the emotions of regret and moral responsibility are real, and the fact that Econs do not have them may not be relevant.

If you are an investor, sufficiently rich and cautious at heart, you may be able to afford the luxury of a portfolio that minimize the expectation of regret even if it does not maximize the accrual of wealth.

You can also take precautions that will inoculate you against regret. Perhaps the most useful is to be explicit about the anticipation of regret. If you can remember when things go badly that you considered the possibility of regret carefully before deciding, you are likely to experience less of it. You should also know that regret and hindsight bias will come together, so anything you can do to preclude hindsight is likely to be helpful. My personal hindsight-avoiding policy is to be either very thorough or completely casual when making a decision with long-term consequences. Hindsight is worse when you think a little, just enough to tell yourself later, “I almost made a better choice.”

When you see cases in isolation, you are likely to be guided by an emotional reaction of System 1.

In terms of the associations they bring to mind — how System 1 reacts to them — the two sentences really “mean” different things. The fact that logically equivalent statements evoke different reactions makes it impossible for Humans to be as reliably rational as Econs.

We should not be surprised: losses evokes stronger negative feelings than costs. Choices are not reality-bound because System 1 is not reality-bound.

In his early essay on consumer behavior, Thaler described the debate about whether gas stations would be allowed to charge different prices for purchases paid with cash or on credit. The credit-card lobby pushed hard to make differential pricing illegal, but it had a fallback position: the difference, if allowed, would be labeled a cash discount, not a credit surcharge. Their psychology was sound: people will more readily forgo a discount than pay a surcharge. The two may be economically equivalent, but they are not emotionally equivalent.

Reframing is effortful and System 2 is normally lazy. Unless there is an obvious reason to do otherwise, most of us passively accept decision problems as they are framed and therefore rarely have an opportunity to discover the extent to which our preferences are frame-bound rather than reality-bound.

Decision makers tend to prefer the sure thing over the gamble (they are risk averse) when the outcomes are good. They tend to reject the sure thing and accept the gamble (they are risk seeking) when both outcomes are negative. The framing experiment reveals that risk-averse and risk-seeking preferences are not reality-bound. Preferences between the same objective outcomes reverse with different formulations.

You have no compelling moral intuitions to guide you in solving that problem. Your moral feelings are attached to frames, to descriptions of reality rather than to reality itself. The message about the nature of framing is stark: framing should not be viewed as an intervention that masks or distorts an underlying preference. Our preferences are about frame problems, and our moral intuitions are about descriptions, not about substance.

When tickets to a particular show are lost, it is natural to post them to the account associated with that play. The cost appears to have doubled and may now be more than the experience is worth. In contrast, a loss of cash is charged to a “general revenue” account — the theater patron is slightly poorer than she had thought she was, and the question she is likely to ask herself is whether the small reduction in her disposable wealth will change her decision about paying for tickets. Most respondents thought it would not.

The version in which cash was lost leads to more reasonable decisions. It is a better frame because the loss, even if tickets were lost, is “sunk,” and sunk costs should be ignored. History is irrelevant and the only issue that matters is the set of options the theater patron has now, and their likely consequences.

Count that as a point against the rational-agent theory. A theory that is worthy of the name asserts that certain events are impossible — they will not happen if the theory is true. When an “impossible” event is observed, the theory is falsified. Theories can survive for a long time after conclusive evidence falsifies them, and the rational-agent model certainly survived the evidence we have seen, and much other evidence as well.

They will feel better about what happened if they manage to frame the outcome in terms of how much money they kept rather than how much they lost.

Let’s reframe the problem by changing the reference point. Imagine we did not own it; how much would we think it is worth?

Peak-end rule: The global retrospective rating was well predicted by the average of the level of pain reported at the worst moment of the experience and at its end.

Duration neglect: The duration of the procedure had no effect whatsoever on the ratings of total pain.

If the objective is to reduce patients’ memory of pain, lowing the peak intensity of pain could be more important than minimizing the duration of the procedure. By the same reasoning, gradual relief may be preferable to abrupt relief if patients retain a better memory when the pain at the end of the procedure is relatively mild.

If the objective is to reduce the amount of pain actually experienced, conducting the procedure swiftly may be appropriate even if doing so increases the peak pain intensity and leaves patients with an awful memory.

The experiencing self is the one that answers the question: “Does it hurt now?” The remembering self is the one that answers the question: “How was it, on the whole?” Memories are all we get to keep from our experience of living, and the only perspective that we can adopt as we think about our lives is therefore that of the remembering self.

He told of listening raptly to a long symphony on a disc that was scratched near the end, producing a shocking sound, and he reported that the bad ending “ruined the whole experience.” But the experience was not actually ruined, only the memory of it. The experiencing self had had an experience that was almost entirely good, and the bad end could not undo it, because it had already happened. Does the actual experience count for nothing?

Confusing experience with the memory of it is a compelling cognitive illusion — and it is the substitution that makes us believe a past experience can be ruined. The experiencing self does not have a voice. The remembering self is sometimes wrong, but it is the one that keeps score and governs what we learnt from living, and it is the one that makes decisions. What we learn from the past is to maximize the qualities of our future memories, not necessarily of our future experience. This is the tyranny of the remembering self.

The cold-hand experiment, like my old injection puzzle, revealed a discrepancy between decision utility and experienced utility.

Of course, evolution could have designed animals’ memory to store integrals, as it surely does in some cases. It is important for a squirrel to “know” the total amount of food it has stored, and a representation of the average size of the nuts would not be a good substitute. However, the integral of pain or pleasure over time may be less biologically significant. We know, for example, that rats show duration neglect for both pleasure and pain.

Here again, only intensity matters. Up to a point, increasing the duration of a burst of stimulation does not appear to increase the eagerness of the animal to obtain it. The rules that govern the remembering self of humans have a long evolutionary history.

Biology vs. Rationality.

Why do we care so much about those last 10 minutes? I quickly realized that I did not care at all about the length of Violetta’s life. If I had been told that she died at age 27, not age 28 as I believed, the news that she had missed a year of happy life would not have moved me at all, but he possibility of the last 10 minutes mattered a great deal. Furthermore, the emotion I felt about the lovers’ reunion would not have changed if I had learned that they actually had a week together, rather than 10 minutes. If the lover had come too later, however, La Traviata would have been an altogether different story. A story is about significant events and memorable moments, not about time passing. Duration neglect is normal in a story, and the ending often defines its character. The same core features appear in the rules of narratives and in the memories of colonoscopies, vacations, and films. This is how the remembering self works: it composes stories and keeps them for future reference.

We do not care only about the daughter’s feelings — it is the narrative of the mother’s life that we wish to improve. Caring for people often takes the form of concern for the quality of their stories, not for their feelings. Indeed, we can be deeply moved even by events that change the stories of people who are already dead. We feel pity for a man who died believing in his wife’s love for him when we hear that she had a lover for many years and stayed with her husband only for his money. We pity the husband although he had lived a happy life. We feel the humiliation of a scientist who made an important discovery that was proved false after she died, although she did not experience the humiliation. Most important, of course, we all care intensely for the narrative of our own life and very much want it to be a good story, with a decent hero.

Resorts offer restorative relaxation; tourism is about helping people construct stories and collect memories. The frenetic picture taking of many tourists suggests that storing memories is often an important goal, which shapes both the plans for the vacation and the experience of it. The photographer does not view the scene as a moment to be savored by as a future memory to be designed.

Many point out that they would not send either themselves or another amnestic to climb mountains or trek through the jungle — because these experience are mostly painful in real time and gain value from the expectation that both the pain and the joy of reaching the goal will be memorable.

You seem to be devoting your entire vacation to the construction of memories. Perhaps you should put away the camera and enjoy the moment, even if it is not very memorable?

She is an Alzheimer’s patient. She no longer maintains a narrative of her life, but her experiencing self is still sensitive to beauty and gentleness.

The second best predictor of the feelings of a day is whether a person did or did not have contacts with friends or relatives. It is only a slight exaggeration to say that happiness is the experience of spending time with people you live and who love you.

The Gallup data permit a comparison of 2 aspects of well-being:

  • the well-being that people experience as they live their lives
  • the judgment they make when they evaluate their life

Beyond the satiation level of income, you can buy more pleasurable experiences, but you will lose some of your ability to enjoy the less expensive ones.

After all, people who decide to get married do so either because they expect it will make them happier or because they hope that making a tie permanent will maintain the present state of bliss. The decision to get married reflects, for many people, a massive error of affective forecasting. On their wedding day, the bride and groom know that the rate of divorce is high and the incidence of marital disappointment is even higher, but they do not believe that these statistics apply to them.

Nothing in life is as important as you think it is when you are thinking about it.

Living in California is like having 10 toes: nice, but not something one thinks much about. Thoughts of any aspect of life are more likely to be salient if a contrasting alternative is highly available.

The role of time has been a refrain in this part of the book. It is logical to describe the life of the experiencing self as a series of moments, each with a value. The value of an episode — I have called it a hedonimeter total — is simply the sum of the values of its moments. But this is not how the mind represents episodes. The remembering self, as I have described it, also tells stories and makes choices, and neither the stories nor the choices properly represent time. In storytelling mode, an episode is represented by a few critical moments, especially the beginning, the peak, and the end. Duration is neglected.

The mistake the people make in the focusing illusion involves attention to selected moments and neglect of what happens at other times. The mind is good with stories, but it does not appear to be well designed for the processing of time.

An objective observer making the choice for someone else would undoubtedly choose the short exposure, favoring the sufferer’s experiencing self. The choices that people made on their own behalf are fairly described as mistakes. Duration neglect and the peak-end rule in the evaluation of stories, both at the opera and in judgments of Jen’s life, are equally indefensible. It does not make sense to evaluate an entire life by its last moments, or to give no weight to duration in deciding which life is more desirable.

The remembering self’s neglect of duration, its exaggerated emphasis on peaks and ends, and its susceptibility to hindsight combine to yield distorted reflections of our actual experience.

In everyday speech, we call people reasonable if it is possible to reason with them, if their beliefs are generally in tune with reality, and if their preferences are in line with their interests and their values. The word rational conveys an image of greater deliberation, more calculation, and less warmth, but in common language a rational person is certainly reasonable. For economists and decision theorists, the adjective has an altogether different meaning. The only test of rationality is not whether a person’s beliefs and preferences are reasonable, but whether they are internally consistent. A rational person can believe in ghosts so long as all her other beliefs are consistent with the existence of ghosts. Rationality is logical coherence — reasonable or not. Econs are rational by this definition, but there is overwhelming evidence that Humans cannot be. An Econ would not be susceptible to priming, WYSIATI, narrow framing, the inside view, or preference reversals, which Humans cannot consistently avoid.

Although Humans are not irrational, they often need help to make more accurate judgments and better decisions, and in some cases policies and institutions can provide that help.

The attentive System 2 is who we think we are. System 2 articulates judgments and makes choices, but it often endorses or rationalizes ideas and feelings that were generated by System 1. You may not know that you are optimistic about a project because something about its leader reminds you of your beloved sister, or that you dislike a person who looks vaguely like your dentist. If asked for an explanation, however, you will search your memory for presentable reasons and will certainly find some. Moreover, you will believe the story you make up. But System 2 is not merely an apologist for System 1; it also prevents many foolish thoughts and inappropriate impulses from overt expression.

System 2 is not a paragon of rationality. Its abilities are limited and so is the knowledge to which it has access. We do not always think straight when we reason, and the errors are not always due to intrusive and incorrect intuitions. Often we make mistakes because we (our System 2) do not know any better.

The acquisition of skills requires a regular environment, an adequate opportunity to practice, and rapid and unequivocal feedback about the correctness of thoughts and actions. When these conditions are fulfilled, skill eventually develops, and the intuitive judgments and choices that quickly come to mind will mostly be accurate. All this is the work of System 1, which means it occurs automatically and fast. A marker of skilled performance is the ability to deal with vast amounts of information swiftly and efficiently.

But it is rare for System 1 to be dumbfounded. System 1 is not constrained by capacity limits and is profligate in its computations. When engaged in searching for an answer to one question, it simultaneously generates the answers to related questions, and it may substitute a response that more easily comes to mind for the one that was requested. The heuristic answer is not necessarily simpler or more frugal than the original question — it is only more accessible, computed more quickly and easily. The heuristic answers are not random, and they are often approximately correct. And sometimes they are quite wrong.

There is no simple way for System 2 to distinguish between a skilled and a heuristic response. Its only recourse is to slow down and attempt to construct an answer on its own, which it is reluctant to do because it is indolent.

We would all like to have a warning bell that rings loudly whenever we are about to make a serious error, but no such bell is available, and cognitive illusions are generally more difficult to recognize than perceptual illusions. The voice of reason may be much fainter than the loud and clear voice of an erroneous intuition, and questioning your intuitions is unpleasant when you face the stress of a big decision. More doubt is the last thing you want when you are in trouble. The upshot is that it is much easier to identify a minefield when you observe others wandering into it than when you are about to do so.

Organizations are better than individuals when it comes to avoiding errors, because they naturally think more slowly and have the power to impose orderly procedures. Organizations can institute and enforce the application of useful checklists, as well as more elaborate exercises, such as reference-class forecasting and the premortem.