Thinking Fast and Slow

Question 0

Kernel

Answer 0

1. (Botany) the edible central part of a seed, nut, or fruit within the shell or stone
2. (Botany) the grain of a cereal, esp wheat, consisting of the seed in a hard husk
3. the central or essential part of something
   Any recent salient event is a candidate to become the kernel of a causal narrative.

Question 1

Vicinity

Answer 1

In the vicinity of 3.7

Question 2

The ultimate test of an explanation is…

Answer 2

The ultimate test of an explanation is weather it would have made the event predictable in advance.

Question 3

Our comforting conviction that the world makes sense rests on a secure foundation:

Answer 3

our almost unlimited ability to ignore our ignorance.

Question 4

Pernicious

Answer 4

1. Tending to cause death or serious injury; deadly: a pernicious virus.
2. Causing great harm; destructive: pernicious rumors.
   It helps perpetuate a pernicious illusion.

Question 5

Premonition

Answer 5

1. an intuition of a future, usually unwelcome, occurrence; foreboding
2. an early warning of a future event; forewarning

Question 6

Hindsight Bias

Answer 6

A general limitation of the human mind is its imperfect ability to construct past states of knowledge, or beliefs that have changed.

Actions that seemed prudent in foresight can look irresponsibly negligent in hindsight.

Question 7

Preposterous

Answer 7

contrary to reason or common sense; utterly absurd or ridiculous.

Considering how little we know, the confidence we have in our beliefs is preposterous.

Question 8

Infantry

Answer 8

1. soldiers or military units that fight on foot.

2. a branch of an army composed

Question 9

Dispassionate

Answer 9

Not influenced by strong feelings or emotions; objective; impartial: a dispassionate reporter.

Question 10

Illusion of Skill in the Financial World

Answer 10

Why do investors, both amateur and professional, stubbornly believe that they can do better than the market, contrary to an economic theory that most of them accept, and contrary to what they could learn from a dispassionate evaluation of their personal experience?!

Question 11

Potent

Answer 11

1. possessing great strength; powerful
2. (of arguments, etc) persuasive or forceful
3. influential or authoritative
4. tending to produce violent physical or chemical effects: a potent poison.
5. (of a male) capable of having sexual intercourse

The most potent psychological cause of the illusion is…

Question 12

Pundit

Answer 12

1. an expert; A source of opinion; a critic: a political pundit/ financial pundits
2. (Education) (formerly) a learned person
3. (Hinduism) Also called: pandit a Brahman learned in Sanskrit and, esp in Hindu religion, philosophy or law.
   To answer these questions, political pundits must jettison the clichés that have shaped Western views on Central Europe these last few decades.

Question 13

“The Hedgehog and The Fox”

Answer 13

Hedgehogs have a theory about the world, are confident in their forecasts and especially reluctant to admit error. They are opinionated and clear, which is exactly what TV producers look for: two hedgehogs on different sides of an issue, each attacking the idiotic ideas of the adversary, make for a good show!

Foxes, by contrast, are complex thinkers. They don’t believe that one big thing drives the march of history. Instead the foxes recognize that reality emerges from the interactions of many different agents and forces, including blind luck, often producing large and unpredictable outcomes. They are less likely to be invited to participate in television debates.

Question 14

Versatile

Answer 14

1. capable of or adapted for many different uses, skills, etc
2. variable or changeable

Question 15

(Paul) Meehl Pattern

Answer 15

Statistical predictions (formulas) usually work better than expert opinions.

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!

The experts who evaluate the quality of immature wine to predict its future price have an extra source of information that makes things worse: they can taste the wine.
But the statistical formula takes into account that the effect of vintage can be only due to variations in weather. It won’t be overconfident in some baseless intuition or personal impression.
Result: The formula predicts the future prices much more accurately than the current prices of young wines do.

Question 16

Robyn Dawes’s article “The Robust Beauty of Improper Linear Models in Decision Making”

Answer 16

A formula that assigns equal weights to all the (common sense) predictors is likely to be just as accurate in predicting new cases as the multiple-regression formula.

Question 17

Three basic conditions for acquiring expertise

Probable validity of intuitive expert opinions

Answer 17

An environment that is sufficiently regular to be predictable
An opportunity to learn these regularities through prolonged practice
Availability of rapid and unequivocal feedback about the correctness of thoughts and actions

Intuition cannot be trusted in the absence of stable regularities in the environment!

Question 18

Planning Fallacy

Answer 18

Plans and forecasts that:
Are unrealistically close to best-case scenarios
Could be improved by consulting the statistics of similar cases (outside view+reference class forecasting)

Question 19

Sanguine

Answer 19

1. Cheerfully confident; optimistic: sanguine about the prospects for an improved economy.
2. Of the color of blood; red.
3. Of a healthy reddish color; ruddy: a sanguine complexion.
   Having the temperament and ruddy complexion formerly thought to be characteristic of a person dominated by this humor; passionate

Question 20

Temperament

Answer 20

a. The manner of thinking, behaving, or reacting characteristic of a specific person: a nervous temperament.
b. The distinguishing mental and physical characteristics of a human according to medieval physiology, resulting from dominance of one of the four humors.
2. Excessive irritability or sensitiveness: an actor with too much temperament.

One of the benefits of an optimistic temperament is that it encourages persistence in the face of obstacles.

Question 21

Hubris / Hybris

Answer 21

excessive pride or self-confidence; arrogance.

“Competition Neglect”

Question 22

President Truman asked for a “one-armed economist” who would take a clear stand;

Answer 22

He was sick and tired of economists who kept saying, “on the other hand…”

Even if they knew how little they know, the experts would be penalized for admitting it.

Question 23

I have always believed that scientific research is another domain where a form of optimism is essential to success:

Answer 23

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.

Question 24

Premortem vs. Postmortem

Answer 24

Post-mortem (meaning after death) may refer to:
Post-mortem examination, or autopsy, an examination of a corpse in order to determine cause of death
Post-mortem interval, the time that has elapsed since a person has died.
Postmortem documentation, a technical analysis of a finished project.

Premortem is trying to write a brief history of a hypothetical disaster taking place as a result of a project that is planned. A partial remedy for overconfidence and the planning bias.

Question 25

Theory-Induced Blindness

is a weakness of the scholarly mind

Answer 25

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 doesn’t seem to fit into the model, you assume that there must be a perfectly good explanation that you are somehow missing.

I didn’t know enough about utility theory to be blinded by respect for it, and I was puzzled.

Question 26

You know you have made a theoretical advance…

Answer 26

When you can no longer reconstruct why you failed for so long to see the obvious!

Question 27

Two aspects of choice that the standard model of indifference curves does not predict

Answer 27

First, tastes are not fixed; they vary with the reference point.
Second, the disadvantages of a change loom larger than its advantages, including a bias that favors the status quo.
The endowment effect

Question 28

Bad Events

Answer 28

The brains of humans and other animals contain a mechanism that is designed to give priority to bad news.

Bad information is also processed more thoroughly than good.

Question 29

Euthanasia

Answer 29

Also called mercy killing. the act of putting to death painlessly or allowing to die, as by withholding medical measures from a person or animal suffering from an incurable, esp. a painful, disease or condition

Question 30

Conservatism

Answer 30

Loss aversion is a powerful conservative force that favors minimal changes from the status quo in the lives of both institutions and individuals.
In any reform process, potential losers will be more active and determined than potential winners.

Question 31

Possibility Effect

Answer 31

What people acquire with a lottery ticket is more than a (very tiny) chance to win; it is the right to dream pleasantly of winning.
(They pay much more than the expected value as a result)

Question 32

The combination of loss aversion and narrow framing is a costly curse. The pain of the frequent small losses exceeds the pleasure of the equally frequent small gains.

Answer 32

Individual investors can avoid that curse, achieving the emotional benefits of broad framing while also saving time and agony, by reducing the frequency with which they check how well their investments are doing. Once a quarter is enough! The deliberate avoidance of exposure to short-term outcomes improves the quality of both decisions and outcomes. You’re less prone to useless churning of your portfolio (a commitment not to change one’s position for several periods which improves financial performance)

Question 33

The disposition effect is an instant of narrow framing.

Answer 33

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.

Question 34

The sunk-cost fallacy keeps people for too long in…

Answer 34

Poor jobs, unhappy marriages, and unpromising research projects.

Question 35

People expect to have stronger emotional reactions (including regret)

Answer 35

to an outcome that is produced by action than to the same outcome when it is produced by inaction.

Question 36

Hsee’s Evaluability Hypothesis

Answer 36

The numbers are not “Evaluable” on their own.
The number of entries is given no weight in single evaluation of a dictionary, less important than the condition of the cover! In joint evaluation this is reversed.

Question 37

“Losses” evokes stronger negative feelings than “costs”.

Answer 37

A bad outcome is much more acceptable if it is framed as the cost of a lottery ticket that didn’t win than if it is simply described as losing a gamble.

Question 38

Broader frames and inclusive accounts,

Answer 38

Generally lead to more rational decisions.

Question 39

Hedonic

Answer 39

Of, relating to, or marked by pleasure.

Hedonism: Pursuit of or devotion to pleasure.

Question 40

A story is about

Answer 40

significant events and memorable moments, not about time passing.

Question 41

This is how the remembering self works:

Answer 41

It composes stories and keeps them for future reference. Duration neglect is normal in a story, and the ending often defines its character.

Question 42

The importance of physical health and social contact in experienced well-being

Answer 42

Improve well-being by switching time from passive leisure, such as movie watching, to more active forms of leisure, including socializing and exercise.
A sickness will make a person miserable, and the second best predictor of the feelings of a day is whether a person did or did not have contacts with friends and family.

Question 43

It is only a slight exaggeration to say that:

Answer 43

happiness is the experience of (being healthy while) spending time with people you love and who love you.

Question 44

The satiation level beyond which experienced well-being no longer increases was a household income of about $75000 (in high-cost areas)

Answer 44

Perhaps because higher income is associated with a reduced ability to enjoy the small pleasures of life.

Question 45

One recipe for a dissatisfied adulthood is

Answer 45

setting goals that are especially difficult to attain

Question 46

Focusing Illusion

Answer 46

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

Question 47

Scientific Progress

Answer 47

Sometimes leaves us more puzzled than we were before.

Question 48

The central fact of our existence

Answer 48

Is that time is the ultimate finite resource, but the remembering self ignores that reality.

Question 49

In words of economists,

Answer 49

Rationality is logical coherence, reasonable or not. Impossible for humans!

Question 50

Faced with answers coming from system one,

Answer 50

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

Question 51

Decision makers will make better choices

Answer 51

When they trust their critics to be sophisticated and fair, and
When they expect their decision to be judged by how it was made, not only by how it turned out.