Alternative Framings at the Gate: Exploring Beyond 'Thinking, Fast & Slow'. (Communication)

Introduction

The book titled Thinking, Fast and Slow by Daniel Kahneman, (published by Farrar, Straus and Giroux, New York) gives us in-depth insights into how we behave and what kind of mental shortcuts are functional when we make any decision. The book starts with a very systematic narrative, but somewhere in between, the narration takes us on a tour of all the works of the author over the past forty years. By the time we come to the end, it becomes a bit tedious and repetitive. Yet, it can be acknowledged as a book that introduced a comprehensive view on "Behavioral Economics" to many of us. The insights of the book have had not only a significant impact on psychology but also on other domains like economics, finance, policy-making, law, and so on. The broad topic of his study is that human beings are prone to intuitive thinking, and that intuition cannot be trusted as it is imperfect and does not result in choices or judgments that are statistically correct and economically optimum. The workings of the mind are susceptible to errors that are common to most of us.

It also talks about the biases of intuition. The biases or heuristics (as termed by the author) signify that while making choices or taking any decision, we automatically assume certain things without cautiously0 thinking them through. The book is divided into five parts. The first part deals with the metaphor of the two systems: System 1 and System 2, which explains how our mind works while taking any decision. System 1 is fast, automatic, intuitive, involuntary, jumps to conclusions quickly, is effortless, and it is more prone to errors. System 2 is slow, processes the available information, it computes, concentrates, and considers other data and does not jump to the conclusion. Relative to system 1, it is less prone to errors.

The second part focuses on heuristics and biases. It explains why we struggle in various situations to think statistically and how our use of rules of thumb or heuristics leads to biased predictions. Different types of heuristics have been discussed, which come into play in different situations of decision-making. Such is the power of heuristics that despite getting all the information, people do not use it correctly and end up making biased decisions.

The third part deals with the issue of overconfidence. The author uses the concept of WYSIATI (what you see is all there is). It means that the workings of the mind consider only those phenomena that is known to be relevant and for which we have information, termed as Known Knowns. It seldom believes the Known Unknowns; the phenomenon that it knows is relevant, but there is no information about it. It hardly explores the Unknown Unknowns; the relevance of the phenomena is unknown as well as there is no information about that phenomenon. It says that we do not consider the complexity of a phenomenon, and based on minimal information, we make sense of the world, which might be very biased as not it does not take into account all the information which might be influencing it. Also, the mind does not factor in the role of luck or chance and might be overemphasizing any pattern or regularity which might not exist.

The fourth part is about choices. In this part, more economic theories are discussed and what kind of heuristics people use while making economic choices. Of all the theories, prospect theory is the most influential one. There are four assumptions underlying prospect theory. First, choices are made after being evaluated as gains or losses relative to a reference point (which is the status quo). The second assumption is that people are loss averse. Third, when it comes to gain, we are risk-averse and prefer a certain amount to a risky choice (even if the expected value is high), and we become risk-taking when it comes to a loss. The fourth assumption is that in a few situations, we overestimate the likelihood of low-probability events and underestimate the events which have a high probability of happening. This assumption is used to explain the choices where people pay more than they should for lottery tickets or flight insurance.

The fifth part deals with the two selves: experiencing self and remembering the person. The experiencing self is the one that is more embedded in the moments and goes through pain, pleasure, and various emotions. It lives in the moment. The remembering self is the one that records or maintains a diary of the experiences. The author emphasizes that remembering the self dominates experiencing the self, and we recall our experience as it has been recorded by remembering the self than the real experience. The remembering self focuses more on the peak moments and the end moments and how the experience ends decides the overall nature of the experience. Even if one goes through the painful process for a longer time but if it ends well, it will be recorded as less painful than the process, which was painful for a shorter time but ended in pain itself. It is like when we recall our experience, our remembering self dominates the experiencing self.

The insights of this book have not only had a significant influence on psychology but also contributed to changing the perspective of the practitioners of various domains like Economics, Finance, Law, Marketing, Policy-making, etc. The conceptualization of behavioral economics as we know it today would not have been possible without the contribution of Kahneman's and Tversky's work. The frameworks and findings of their research have inspired many studies. For example, Heller et al. (2017) applied the insights of this book to conduct field experiments to reduce crime and dropout in Chicago. Murdock & Sullivan (2013) explained the significance of the ideas of the book for lawyers and how relevant all the insights are for their practice. Sunstein (2005) pointed out the relevance of the findings of the book in the framing of social policies. The book is useful for financial investors as it gives them an idea about the heuristics they might be applying while deciding about investments. It has found its application in different strata. For example, Thaler & Sunstein (2008) support policies that simplify...