Thinking Fast and Slow Flashcards
Kernel
- (Botany) the edible central part of a seed, nut, or fruit within the shell or stone
- (Botany) the grain of a cereal, esp wheat, consisting of the seed in a hard husk
- the central or essential part of something
Any recent salient event is a candidate to become the kernel of a causal narrative.
Vicinity
In the vicinity of 3.7
The ultimate test of an explanation is…
The ultimate test of an explanation is weather it would have made the event predictable in advance.
Our comforting conviction that the world makes sense rests on a secure foundation:
our almost unlimited ability to ignore our ignorance.
Pernicious
- Tending to cause death or serious injury; deadly: a pernicious virus.
- Causing great harm; destructive: pernicious rumors.
It helps perpetuate a pernicious illusion.
Premonition
- an intuition of a future, usually unwelcome, occurrence; foreboding
- an early warning of a future event; forewarning
Hindsight Bias
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.
Preposterous
contrary to reason or common sense; utterly absurd or ridiculous.
Considering how little we know, the confidence we have in our beliefs is preposterous.
Infantry
- soldiers or military units that fight on foot.
2. a branch of an army composed
Dispassionate
Not influenced by strong feelings or emotions; objective; impartial: a dispassionate reporter.
Illusion of Skill in the Financial World
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?!
Potent
- possessing great strength; powerful
- (of arguments, etc) persuasive or forceful
- influential or authoritative
- tending to produce violent physical or chemical effects: a potent poison.
- (of a male) capable of having sexual intercourse
The most potent psychological cause of the illusion is…
Pundit
- an expert; A source of opinion; a critic: a political pundit/ financial pundits
- (Education) (formerly) a learned person
- (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.
“The Hedgehog and The Fox”
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.
Versatile
- capable of or adapted for many different uses, skills, etc
- variable or changeable
(Paul) Meehl Pattern
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.
Robyn Dawes’s article “The Robust Beauty of Improper Linear Models in Decision Making”
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.
Three basic conditions for acquiring expertise
Probable validity of intuitive expert opinions
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!
Planning Fallacy
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)
Sanguine
- Cheerfully confident; optimistic: sanguine about the prospects for an improved economy.
- Of the color of blood; red.
- 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
Temperament
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.
Hubris / Hybris
excessive pride or self-confidence; arrogance.
“Competition Neglect”
President Truman asked for a “one-armed economist” who would take a clear stand;
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.
I have always believed that scientific research is another domain where a form of optimism is essential to success:
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.
Premortem vs. Postmortem
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.
Theory-Induced Blindness
is a weakness of the scholarly mind
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.
You know you have made a theoretical advance…
When you can no longer reconstruct why you failed for so long to see the obvious!
Two aspects of choice that the standard model of indifference curves does not predict
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
Bad Events
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.
Euthanasia
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
Conservatism
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.
Possibility Effect
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)
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.
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)
The disposition effect is an instant 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.
The sunk-cost fallacy keeps people for too long in…
Poor jobs, unhappy marriages, and unpromising research projects.
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.
Hsee’s Evaluability Hypothesis
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.
“Losses” evokes stronger negative feelings than “costs”.
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.
Broader frames and inclusive accounts,
Generally lead to more rational decisions.
Hedonic
Of, relating to, or marked by pleasure.
Hedonism: Pursuit of or devotion to pleasure.
A story is about
significant events and memorable moments, not about time passing.
This is how the remembering self works:
It composes stories and keeps them for future reference. Duration neglect is normal in a story, and the ending often defines its character.
The importance of physical health and social contact in experienced well-being
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.
It is only a slight exaggeration to say that:
happiness is the experience of (being healthy while) spending time with people you love and who love you.
The satiation level beyond which experienced well-being no longer increases was a household income of about $75000 (in high-cost areas)
Perhaps because higher income is associated with a reduced ability to enjoy the small pleasures of life.
One recipe for a dissatisfied adulthood is
setting goals that are especially difficult to attain
Focusing Illusion
Nothing in life is as important as you think it is when you are thinking about it
Scientific Progress
Sometimes leaves us more puzzled than we were before.
The central fact of our existence
Is that time is the ultimate finite resource, but the remembering self ignores that reality.
In words of economists,
Rationality is logical coherence, reasonable or not. Impossible for humans!
Faced with answers coming from system one,
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.
Decision makers will make better choices
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.
