{"id":1469,"date":"2012-09-01T10:31:19","date_gmt":"2012-09-01T15:31:19","guid":{"rendered":"http:\/\/www.fanagrams.com\/blog\/?p=1469"},"modified":"2012-09-03T13:49:28","modified_gmt":"2012-09-03T18:49:28","slug":"think-fast-think-slow","status":"publish","type":"post","link":"https:\/\/www.fanagrams.com\/blog\/2012\/09\/think-fast-think-slow\/","title":{"rendered":"Think Fast, Think Slow"},"content":{"rendered":"

Next to my bed is a large stack of books, most of which I will never read.\u00a0 I pick them up on occasional prowls through the local bookstore, or buy them based on a book review.\u00a0 The problem is that I am far more ambitious when I buy books than when I want to read them.\u00a0 Recent choices include \u201cUpright, the Evolutionary Key to Becoming Human,\u201d \u201cMycophilia\u201d (about mushrooms), and \u201cMr. Gatling\u2019s Terrible Marvel\u201d (about the history of the Gatling gun).\u00a0 However, I promised myself that I would make an honest effort at \u201cThinking Fast and Slow\u201d a well reviewed book about how we think.\u00a0 But about half way through it, I raised the white flag and hoped that perhaps there was an old Vanity Fair nesting amongst the dust bunnies under the bed.<\/p>\n

Beside, I think that I\u2019ve got the hang of the book.\u00a0 The author, Daniel Kahneman, a psychologist, makes a pretty strong case that our exquisite brain, the 800 pound gorilla at the top of the food chain, basically relies on a mish-mash of biases, irrational \u201crules of thumb\u201d (formally called heuristics) and stereotypes.\u00a0 Here it is in a nutshell.\u00a0 Kahneman describes two different patterns of thinking.\u00a0 System 1 is our fast, automatic and emotional pattern of processing information.\u00a0 In contrast, System 2 is slow, effortful, logical and conscious.\u00a0 We would like to think that System 2 is the basis of human intelligence but here\u2019s the problem.\u00a0 System 2 is just plain lazy and defers to System 1 whenever it can.\u00a0 In the meantime, System 1 struggles to keep up with the deluge of input and is forced to make quick and dirty decisions on incomplete information.\u00a0 System 1 lacks the discipline to look beyond the surface and relies on \u201cWYSIATI,\u201d an acronym for \u201cwhat you see is all there is.\u201d \u00a0Basically System 1 desperately tries to stitch together a plausible story line from immediately available information, and in its rush is totally vulnerable to all sorts of biases, fallacies, stereotypes and prejudices.\u00a0 The recent movie Moneyball contains a great example of Systems 1 and 2 at work.\u00a0 A room is filled with grizzled baseball scouts who make System 1 comments such as, \u201cHe waddles like a duck, he\u2019s no good,\u201d or \u201cHe\u2019s got an ugly girlfriend, and an ugly girlfriend means no confidence.\u00a0 Don\u2019t draft him.\u201d\u00a0 That is pure System 1, which contrasts with the GM, Billy Beane, who has a System 2 approach that focuses on a detailed statistical analysis of on base percentage.<\/p>\n

One of the many biases of System 1 is overconfidence.\u00a0 Not surprisingly, overconfidence is a particular problem among people who feel powerful.\u00a0 This is a troubling chain of events for our elected officials.\u00a0 We presumably elect presidents based on their careful, logical thinking \u2013 we\u2019re hoping that they are endowed with a robust System 2, but the power that comes with the election puts them on a slippery slope of an overconfident System 1.\u00a0 Hence we should not be surprised when George W. Bush says, \u201cI don\u2019t spend a lot of time taking polls around the world to tell me what I think is the right way to act.\u00a0 I\u2019ve just got to know how I feel.\u201d\u00a0 Yikes. \u00a0\u00a0And then as voters, we presumably use our own System 2 to select our candidate.\u00a0 But sometimes the issues are too complicated for System 2, or System 1 has an over ride button.\u00a0 I am reminded of my father in 2004, when his System 2 was just badgering him not to vote for George W.\u00a0 But Dad was a life long Republican, as was his father, his grandfather, and great grandfather, who was a paymaster for Abraham Lincoln.\u00a0 To vote Democratic would be a major upheaval of his self-image, and would throw his carefully constructed System 1 into chaos.\u00a0 He struggled, but he found a work-around.\u00a0 After he watched the convention, he said, \u201cI really like that Laura Bush.\u00a0 I think I\u2019ll vote for her husband.\u201d<\/p>\n

Kahneman first entered the financial world when he realized that System 1 is particularly pathetic at assessing risk and probability. \u00a0For example, we typically assume that good outcomes are a result of skill, either ours alone or the experts that we hire.\u00a0 It\u2019s an ego thing \u2013 we consistently underestimate the role of luck in almost everything that we do.\u00a0 This is a pernicious effect in estimating stock-picking skill.\u00a0 Money managers and hedge fund guys receive luscious year end \u201cperformance-bonuses\u201d which may just reflect their luck in a given year.\u00a0 This illusion of skill is deeply ingrained in the financial world.\u00a0 In fact, a lucky monkey throwing darts is just as likely to be eligible for a bonus.<\/p>\n

It\u2019s all very depressing until Kahneman points out that System 1 actually does a mostly brilliant job considering the over-whelming work load and time crunch, and the best that we can do is make sure that our System 2 is not so damn lazy.\u00a0 Think of your System 2 as your family dog, who basically sits around all day, totally sacked out on the couch until you get him roused for his daily walk \u2013 his only mental stimulation of the day.\u00a0 Ideally, you want a dog that is self-motivated and rushes around sniffing and exploring.<\/p>\n

After reading Kahneman\u2019s book, I have a better sense of my System 2, which I need to rely on as I delve into a work project, typically an analysis of some medical technology.\u00a0 I feel like my System 2 is a hibernating bear in the zoo, and I have to throw tasty marshmallows of information through the bars of the cage, hit him on the nose and hope that he looks up and shows a spark of interest.<\/p>\n

\u201cHey, System 2, I need you for a project.\u00a0 System 1 says that you won\u2019t believe what Medtronic is up to this time.\u00a0 You won\u2019t believe it.\u00a0 They want to implant something into the brain.\u201d<\/p>\n

The lazy bear might show some initial interest, but then snort and roll over.\u00a0 Time to up the ante.\u00a0 \u201cYo, System 2, wake up, I\u2019ve got another project on your favorite topic \u2013 incontinence.\u00a0 This will give you the unique opportunity to be the big fish in the small pond of incontinence expertise.\u00a0 In fact, I bet you could knock this one off in no time.\u201d<\/p>\n

Finally, thank god, a response, with a huge heave-ho, the bear rises, shuffles over to the cage and sticks his nose through the bars.\u00a0 Now I have to act fast, since once I\u2019ve got my System 2 up and running, I have got to keep it running, and so my typical work pattern is to plow through the project without taking any breaks.\u00a0 Working in fits and starts would only allow System 2 to go back into hibernation.\u00a0 And then when I finish a project, I know that I have to give myself a couple of days of dinking around before I can fire up the lazy bear again.<\/p>\n

About two years ago, I retook the SATs after a 45 year hiatus in an effort to understand the hazing ritual that college-bound teenagers must endure, and to see if my accumulated life skills would improve my meager test taking skills.\u00a0 Now as I look back on it, I think one component of the SAT test is whether or not you can engage your System 2 for a grueling 4 hours, particularly when the material is so relentlessly boring.\u00a0 The SAT test is a constant battle between the two systems, and even though you might want to rely on System 2, time constraints force you to use the intuition of System 1 to answer some questions.\u00a0 Therefore, a critical test taking skill is the ability to recognize which questions require triage to System 2.\u00a0 The SAT developers know this, and pepper the test with trick questions designed to lull your System 1 into a smug complacency.<\/p>\n

Here is a sample math question:<\/p>\n