Summary of Thinking, Fast and Slow by Kahneman - 1st edition
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How can you remedy the exaggerated caution evoked by loss aversion and the exaggerated optimism of the planning fallacy? – Chapter 31
What are risk policies? – Chapter 31
The emotional evaluation of ‘sure loss’ and ‘sure gain’ is an automatic response of System 1, which takes place before the computation of the expected values of the gambles. People that have to make choices that involve high or moderate probabilities tend to be risk seeking when it comes to losses and risk averse when it comes to gains, which can be costly. These tendencies make you willing to pay a high price to receive a sure gain rather than face a gamble, and willing to pay a high price to avoid a sure loss.
Construing decisions is possible in two ways:
Broad framing: a single comprehensive decision, with four options.
Narrow framing: a sequence of two simple decisions, considered apart from each other.
The concept of logical consistency cannot be achieved be our mind. We tend to avoid mental effort and are susceptible to WYSITA, so we have the tendency of making decisions as problems arise, even when they have to be considered jointly. Broad framing blunts the emotional response to losses and increases the willingness to take risks. Financial traders shield themselves from the pain of losses by this type of framing. The combination of narrow framing and loss aversion must be avoided. Individual investors avoid it by checking less often how their investments are doing. Constantly checking is unwise, because the pain of frequent small losses trumps the joy of small gains. Deliberately avoiding being exposed to short-term outcomes improves the quality of decisions and outcomes. The short-term reaction to bad news is usually increased loss aversion.
A decision maker who is prone to narrow framing should have a ‘risk policy’ that he applies whenever a relevant problem arises. Examples of risk policies are: “never buy extended warranties” and “always take the highest possible deductible when purchasing insurance". A risk policy is a broad frame that embeds a certain risky choice in a set of similar choices. The risk policy and the outside view are remedies against two opposite biases that influence a lot of decisions: the exaggerated caution evoked by loss aversion and the exaggerated optimism of the planning fallacy.
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Summary of Thinking, Fast and Slow by Kahneman - 1st edition
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Summary of Thinking, Fast and Slow by Kahneman - 1st edition
- What is the book 'Thinking, fast and slow' by Kahneman about?
- What distinguishes fast and slow thinking? - Chapter 1
- How do fast and slow thinking deal with effortful tasks? - Chapter 2
- How does the 'lazy control' of slow thinking work? - Chapter 3
- How does the 'associative machinery' of fast thinking work? - Chapter 4
- When is your mind at ease? - Chapter 5
- How does your mind deal with surprises? - Chapter 6
- Why do people so often jump to conclusions? - Chapter 7
- How are your judgments formed? – Chapter 8
- How do you generate an intuitive opinion on a complex problem? – Chapter 9
- When should researchers be more suspicious of their statistical intuitions? – Chapter 10
- How do unknown quantities enhance bias in your mind? – Chapter 11
- How do unknown frequencies enhance bias in your mind? – Chapter 12
- How do risk and availability enhance bias in your mind? - Chapter 13
- How do you prevent false intuitive judgement? - Chapter 14
- How is fallacy formed in you mind? - Chapter 15
- How does causally connected storytelling enhance bias in you mind? - Chapter 16
- How does causal interpretation enhance bias in you mind? - Chapter 17
- How can you tame and correct your intuitive predictions? - Chapter 18
- Why is every success story you read or hear often wrong? - Chapter 19
- How does the illusion of validity make you overconfident in your ability to predict the future? - Chapter 20
- How can you use statistics to correct intuitions? - Chapter 21
- When do your judgments reflect true expertise? – Chapter 22
- What is the importance of the 'outside view' versus the 'inside view' for your judgements? – Chapter 23
- What is the best remedy for overconfident optimism? – Chapter 24
- How does your valuing relate with actual value? – Chapter 25
- Why is 'Prospect theory' better than 'Utility theory' in understanding the evaluation of financial outcomes? – Chapter 26
- Why is 'Prospect theory' better than 'Utility theory' in understanding the endowment effect of valuing valuables? – Chapter 27
- How is your decision-making affected by avoiding a loss and achieving a gain? – Chapter 28
- How is your decision-making affected by the value you attribute to losses, gains and wealth? – Chapter 29
- How is your decision-making affected by rare events? – Chapter 30
- How can you remedy the exaggerated caution evoked by loss aversion and the exaggerated optimism of the planning fallacy? – Chapter 31
- How do you keep mental account of gains, losses and regret? – Chapter 32
- When do preference reversals occur? - Chapter 33
- How is your decision-making affected by words that induce emotion? - Chapter 34
- How can our memory affect our judgments of experiences? - Chapter 35
- How does our memory affect our choices? - Chapter 36
- What does research about experienced well-being learn us? – Chapter 37
- How does your thinking affect your experience of happiness? – Chapter 38
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Summary of Thinking, Fast and Slow by Kahneman - 1st edition
Summary per chapter with the 1st edition of Thinking, Fast and Slow by Kahneman
- What is the book about?
- Part 1: How do fast thinking and slow thinking work? Chapters 1-9
- Part 2:
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