Kahneman, Daniel. “Thinking, Fast and Slow.” Farrar, Straus and Giroux, 2011.

1. Two Systems of Thought:

• System 1: Operates automatically, quickly, with little effort or voluntary control.
• System 2: Allocates attention to effortful mental activities, including complex calculations.
• Interaction: System 1 generates suggestions for System 2; if endorsed, becomes beliefs and voluntary actions.
• Example: Solving a simple math problem (System 1) vs. a complex one (System 2).

1. The Anchoring Effect:

• Influence of Initial Information: First numbers we see influence subsequent judgments or estimates.
• Negotiations: Initial price offered sets a starting point and affects final settlement.
• Marketing: High original price makes a discounted price seem more appealing.

1. Availability Heuristic:

• Ease of Recall: Overestimating the frequency of events that are easily remembered.
• Media Influence: Frequent news coverage can lead to an overestimation of the probability of events.
• Risk Assessment: Misjudging risks based on recent or memorable events.

1. Substitution in Complex Questions:

• Simplifying Hard Questions: System 1 converts difficult questions into simpler ones unconsciously.
• Heuristic Replacement: Complex assessments are replaced by simpler and more intuitive ones.
• Bias and Error: Can lead to systematic errors in prediction and judgment.

1. Overconfidence in Predictions:

• Overestimation of Knowledge: Believing we know more than we actually do.
• Planning Fallacy: Underestimating the time, costs, and risks of future actions.
• Expert Overconfidence: Professionals overestimating the accuracy of their predictions.

1. Framing Effects:

• Response to Different Presentations: Choices can be significantly affected by how options are framed.
• Loss vs. Gain Framing: People are generally more sensitive to potential losses than equivalent gains.
• Impact in Decision Making: Influences everything from financial choices to medical decisions.

1. The Endowment Effect:

• Value Increase with Ownership: People ascribe more value to things as soon as they own them.
• Loss Aversion: More sensitive to losses than to gains, leading to an aversion to trading or selling.
• Market Implications: Causes discrepancies between buying and selling prices.

1. Prospect Theory (Expanded):

• Loss Aversion: Losses are more psychologically impactful than an equivalent amount of gains.
• Diminishing Sensitivity: The perceived difference between $100 and $200 is greater than between $1,100 and $1,200.
• Reference Dependence: Outcomes are evaluated relative to a reference point, often the status quo.

1. Hindsight Bias:

• “I Knew It All Along”: Belief that one could have predicted an event after it has occurred.
• Overconfidence in Predictions: Leads to overconfidence in ability to predict future events.
• Implications: Affects legal judgments, historical interpretations, and personal relationships.

1. The Sunk Cost Fallacy:
   • Past Investments Influence Decisions: Continuing with an endeavor based on previously invested resources.
   • Rationalizing Bad Decisions: Justifying further investment to not waste what’s already spent.
   • Economic and Emotional Factors: Influenced by both economic decisions and emotional attachments.
2. The Illusion of Understanding:
   • Coherent Stories from Past Events: Believing we understand the past fosters overconfidence in predicting the future.
   • Narrative Fallacy: Creating a story post-hoc makes it seem that events were almost inevitable.
   • Influence on Decision Making: Leads to overconfidence in financial markets, politics, and personal life.
3. The Illusion of Validity:
   • Confidence in Judgment: Belief in the validity of our judgments, even with limited evidence.
   • Overestimation of Predictive Power: Especially in fields like stock market predictions.
   • Persistence of Impressions: Tendency to maintain an impression even after it’s contradicted by facts.
4. The Focusing Illusion:
   • Overestimating Importance: Things seem more important when focusing on them.
   • Life Satisfaction: Judgments about life satisfaction can be disproportionately influenced by current mood.
   • Decision Making: Affects personal happiness, policy decisions, and economic choices.
5. The Law of Small Numbers:
   • Overinterpreting Small Samples: Drawing broad conclusions from small amounts of data.
   • Misleading Intuitions: Belief in the law of small numbers leads to overconfidence in findings.
   • Implications in Science and Business: Affects research conclusions, business strategy, and policy decisions.
   • Regression to the Mean:
     • Statistical Principle: Extreme cases are likely to be followed by more moderate ones.
     • Misinterpretation: Attributing the cause of regression to non-existent factors.
     • Impact on Evaluations: Affects how we assess performance in various fields.
   • Priming:
     • Subconscious Influence: Exposure to one stimulus influences responses to subsequent stimuli.
     • Behavioral Effects: Simple cues can unconsciously influence decisions and actions.
     • Implications: Affects everything from consumer behavior to interpersonal interactions.
   • Mr. Jones Experiment:
     • Bias from Initial Information: First impressions heavily influence subsequent judgments.
     • Illustration of Cognitive Biases: Shows how preconceptions can skew our perception.
     • Impact on Decision Making: Highlights the need for critical thinking in assessments.
   • Cognitive Coherence:
     • Desire for Consistent Stories: Tendency to ignore evidence that contradicts our current beliefs.
     • Resistance to Change: Difficulty in accepting new or opposing information.
     • Influence on Beliefs and Decisions: Affects our ability to process new information objectively.