A Psychological Perspective on Rationality - 2013 Arthur M. Okun Public Policy Lecture

hello I'm Bob Shelly of introducing for you Daniel Kahneman I have to say for this is the this is one of our open lecture series talks and we've had very many illustrious people in for these talks but this is the biggest turnout ever and I'm trying to understand why I think it has its really testimony to Kahneman's amazingly wide reach in his works that he has touched every do not every most departments in the university you can see his influences in the Economics Department in the management school in the law school in the psychology department and the political science department it's really all over I was wondering if I could quantify his influence on Yale as an example of many other universities I was reminded that he has two co-authors here major co-authors Nathan November and Shane Frederick but I think he probably has other co-authors so I had the idea I would look up Daniel Kahneman and Yale on scholar.google.com and then I'd find all of all of his co-authors and I'd find all the Yale professors who wrote papers citing Daniel Kahneman and I got 8400 hits and there is practically no living scholar but I could substitute for Daniel Kahneman and get anything like that so I think is real and testimony to the strength of his work we had an interesting discussion at lunch he has one of the most to me interesting life stories he was born in Tel Aviv but then grew up in Paris and the Nazis as you may remember occupied Paris and they were not very nice to Jews living in Paris so he was 11 years old when world war ii ended and survived by his family hiding and moving and so remarkably danny said at lunch i don't feel any scars from that no emotional scars from that experience any way to continue his life story he would then move back to israel and studied at the Hebrew University in Jerusalem and there he met his most major collaborator Amos Tversky and the two of them are collaborated for years and a lot of that work is reported in Danny's new best-selling book Thinking Fast and Slow which is a I have it wrong not exactly right and it's a New York Times bestseller in 35 languages again testimony to them it's just the amazing reach of his work it's very powerful of work that he's done unfortunately Amos Tversky died at age 59 in 1996 and was unable to share the Nobel Prize although Danny generously shared hit with him in words I should say something about the lecture series this is one of the Arthur Okun lectures and this was this series was funded by an anonymous donor who was an admirer of Arthur Okun and Danny told me at lunch that he's an admirer of Arthur of Arthur Okun was a professor at Yale who died also at an early age at 51 in 1980 he was the chairman of the Council of Economic Advisers under President Lyndon Johnson and I think I looked through his works and I didn't see much in common between Hogan and Kahneman except that I think both of them were people with a deep respect for the and the facts and the real world so let me just conclude by saying that I'm good Danny will speak for one hour I think and that leave us a full half hour to four questions and we have someone with a roving mic this event is being recorded so we try to get your questions onto the microphone and so that everyone can hear all right I'm bringing you Danny Kahneman I've been retired for some years and and I'm specifically retired from talking at universities because I haven't been doing really novel research for the last three or four years I've been busy writing that book and I don't think really that I can demyx who are not doing you think should be talking but but when you're approached by Bob Shiller it's very very hard to say no so I this I think it's just about the only one of its kind that I'm giving this year another attraction indeed was there the idea of giving the oken lecture and it's because Oken Arthur Okun played a certain role in my life I am NOT an economist as I'm sure many if not all of you know I'm a psychologist in fact I never had a class in economics but the work that Amos Tversky and I did was sort of picked up by some friendly economists and it's really riding on their work that I you know I got the Nobel Prize largely because of their work not so much because of what we had done but because of the fact that it was influential in economics my first introduction to economics was a paper that Amos Tversky sort of put on my desk many many years ago and and I was so struck by it by the first sentence that I still remember it by heart and it said and it said that the human agent of economic theory is rational and selfish and his tastes do not change today it would be his or her but then it was his days do not change and I remember being utterly astonished because for a psychologist these three propositions just sound bizarre that people are rational selfish and their tastes do not change and as it happens I've done some work not not by design just by the kind of accidents that that guide most people's lives and research I've done some work on all three of them on rationality on selfishness and on tastes and how they train there was a year in 1984 during which the fellow who is now the Guru of behavior economics Richard Thaler who is also my best friend spent a year with me in Vancouver where I was teaching at the time and during that year one of the things we studied we studied fairness and we studied the role of fairness and economic transactions and and that is when this was 1984 Arthur Okun had died I think in 1980 posthumously there was a book of his was published called prices and quantities and and in that book in effect you know it might not have been noticed by economists at the time but but he was giving a big play we thought - fairness and trying to explain why markets do not clear that is why agents and the some conditions do not take advantage of all the opportunities that are available to them to make profit and when we we studied very much that problem what are the constraints on agents within the economic sphere which are punished by somebody being labeled unfair in the market and the whole introduction to up so that was actually the first economics book that I seriously looked at and well the introduction to our paper was all about Arthur Okun and with had said so that was certainly part of what brought me here not be talking today not about fairness but about rationality and about rationality and psychology and uh and for those of you who have read my book you'll recognize most of the stuff because today well I'll tell you something else and I won't ramble all the time and just rambling now so when when writes a book at an elderly age or at least when I write a book at an elderly age because that I'm the only case I know then very strange things happens which is that you only know what you wrote in the book I mean I have forgotten absolutely everything ever knew that I didn't write down that comes from the combination of writing a book and then giving lots of talks about it and then all the examples that come to my mind are from the book and I really like them because one of the rules that I do mention in the book is that when something becomes thoroughly familiar you like it more and more and so it becomes very difficult to invent new things I will talk really not about rationality but about irrationality no not about irrationality about imperfect rationality I I don't like the word irrationality because it conveys to me you know frothing at the mouth and a lot of things that I think are just not descriptive of humans but it is a thought that the theory of the rational agent model which plays a central role in economics and in other social sciences the rational agent model is built on the assumption that people are that economic agents are rational or at least or rational enough so that you can assume rationality at the basis of a lot of economic modeling and it in a way this is obviously not true and everybody knows it's not true Amos Tversky used to say that all the economists he knows are fully aware of their spouse not being rational or they're deemed not being rational but when it comes to economic agents in principle or in general then they assume and and defend the assumption of rationality I propose a very simple diagnostic for imperfect rationality and you know when when you look at a judgment or at a preference you can represent it as a some combination of considerations each of these considerations is assigned some kind of a weight and you know it's a it's a very general scheme for representing judgments and preferences and a failure a perfect rationality and the broader sense is that the weighting is not quite right that is that there are some considerations and some facts that are given too much weight more than they should have and I'm not going to define what is the correct weight because that depends on a lot of things and and there are many ways of defining correct weights but once you define a correct weight in an acceptable way then it turns out that people don't use those weights don't apply those week's considerations are over weighted or underweight and this is when I think convenient way of thinking about failures of rationality most of the familiar demonstrations of failure rationality or this kind you know we commonly assumed and recognize that we people overweight the present over the future they overweight losses over gains they when they look at lottery tickets that specify an amount to be won and you know that the probability is menu skew people overweight the amount rather than the probability and they find those lottery tickets to attractive more attractive than they should if they were perfectly rational people overweight information that is currently available over information that they do not have so information that I need but don't have gets much no less weight than information that I do happen to have people overweight emotional factors over dry factors they they overweight vivid examples over more pallid statistical description people underweight certain things and actually one very general characteristic of the way that people think it is that people underweight statistical characteristics of our son they tend to think about individual cases and they focus on individual cases they think about individual cases and that is the source of that's been the occasion for doing a lot of research demonstrating different ways in which people diverge from rationality there are there are other Diagnostics and you know I mentioned three of them one that Amos Tversky and I did a lot of work on is violations of the rule that is called rule invariance and in it the invariance rule specified that certain factors should be given a weight of zero so for example if you describe Kolkata meat as being 20% fat or 80 percent fat free in terms of the substance of what you are saying you are saying exactly the same thing and if people were assigning the monetary value to acquiring such a piece of piece of such me then they should not be influenced by whether it is described as 20 percent fat or 80 in fact freak they are influenced by that so they overweight something that they should neglect the content the meat itself in this case is invariant but it's described in different ways you should be indifferent to these ways you should not be affected by them but in fact all of us are so this is one family of violations of rationality there is another which i think is extremely important and this is that we tend to focus on on the problem at hand and we tend to focus very narrowly on the problem at hand and you know this takes the form of investors deciding on a particular investment and very frequently without regard for their other investments or for what else they are people making a decision without considering the fact that there will be further decisions in the future that you know they should be considering what they will do then when deciding what to do now and it turns out people actually don't then there are failures of what I call a brick tivity and that's that one isn't discussed a lot but it's quite straightforward we we tend to think about reasoning as going from premises to conclusions so reasoning is directional there are certain thing that you assume and then from those assumptions you get somewhere uh and it's supposed to be directional when you see influences that go the other way that is when people believe in arguments because they believe in the conclusions that is a very characteristic failure of perfect rationality and it's one that we very commonly find now there has been a lot of work along those lines documenting these types of these types of violations of the rules of the perfect rationality and economists in particular complain and I think rightly so about the work of psychologists in this area and they accuse us quite correctly of not having a theory economists are theories psychologists don't in fact you could say without exaggeration that economists are theories and psychologists tend to have lists they have lists of phenomenon and you know long list of phenomena and this is not considered elegant in some circles and among my economist friends it is not viewed kindly what psychologists do have and it is true we really do not have a general theory we do have a lot of what I would call intermediate level generalizations where facts that are not very limited facts they they have a certain range but they are not linked very closely to each other they there isn't a body of theory to hold all of us together now when I settle down to write a book on Thinking Fast and Slow it's in a way an attempt to go a little beyond what we have in psychology in general but by trying to take a lot of phenomena and trying to put them within a single unified frame now the framework I must say is nothing to be proud of it's in fact a somewhat disreputable approach what the one that I have taken and I've taken it very deliberately I speak in the book of two agents in the mind and speak of system one and system two as if they were things and actually and if they were persons because I'm trying to endow them with a certain character with with propensity is with skills with habits with things that they tend to do or are unable to do so that's the way I go at it now I really don't believe that there are such agents in the mind this by the way it's contrary not only to the rules of economics because it's not a proper theory it's actually contrary to the rules of doing proper psychology because psychologists learn not to explain behavior by assuming little people inside the head they're called they're called homunculus and you try not to explain the behavior you know at the agent by by the population inside their head and I do precisely that and I and I do it without shame and I will tell you why I do it I will speak of system one and that's that's the quick one that's thinking fast that's the intuitive one and I'll try to describe it and I'll speak a system to that's a slow thinking of the title this is the control one this is the careful one and and I'll speak of their interaction as if they were interacting and sort of one of them trying to control the other and vice versa and of course I don't believe that there are such systems in the brain or you know that there are these little people so why do I do it well I'm going to tell you the correct way of describing everything that I'm going to say when I say system one does X or system two does exosystem two cannot do X what I really mean by that is well that classes of behaviors are classes of mental activities that you could call type one and type two psychologists have absolutely no directions about chorong classes of behavior type one and type two now when I say that system one does all the behaviors that are type one and system two does all the behaviors type two so I've invented an agent why have I invented an eight-room you're going to find out actually within the next hour and I am quite sure that I'm this makes it easy to think about psychology by because our minds appear to be wired for processing information about agents we're just very very good at endow in ages you know animal-human a 10 down agents with traits with propensities with skills and once we have endowed an agent with a propensity or whether trait we tend to remember that and eventually when we have a rich description of an agent that agent does develop a sort of personality and then we are able in intuitive ways of guessing how that agent will behave in other circumstances this is really I believe is some thing that we have that is built-in that we can do and I'm deliberately building on that this is a way I think I think of system 1 and system 2 I can translate that into proper language type 1 and type 2 anytime so could you buy a lot I think you know that unless you're trying to impress some purists it's not worth the effort you can just go on thinking in terms of system 1 and system 2 and the psychodrama between them so let me tell you a bit about the to system I'll start with system to system - that's the slow one and basically listen you can think of it as the system that engages in effortful activity so type 2 activities if you will are activities that demand effort now how do we know the demand ffs well there are two main tests one is physiological there are many manifestations of effort including dilation of the pupil heart rate quickens lots of things happen that you can tell when people are exerting mental F and the main diagnostic is that when people exert effort one activity they cannot perform other activities at the same time so you know if my my diagnostic is if it is something that you cannot do while making a left turn into traffic then it's effortful because when you make a left turn into traffic you stop talking and if people have any sense we're sitting next to you they stop talking and that's why speaking on the cell phone is so dangerous when you drive it's because the people who talk to you don't know that you are overtaking a car or that you're making a left turn onto traffic so effort is we have what is called a limited capacity for effort which means that if we do one thing there are other things that we cannot do we cannot do several effortful things at the same time efforts or activities are experienced by and large as my activities that is there is an impression a feeling of agency attached to most of these efforts will give 'ti that's something that I do and so multiplying two numbers is effortful focusing intently on a particular spot and try not to let attention wander that's effortful being polite to somebody that you don't like that's effortful we we know about these things because they train the physiology they leave people tired and there is it there are many indications that when people are tired after exerting effort they find it more difficult to exert effort in other activities so this is what system 2 does and by and large when we think of our minds we think of what system 2 does we think of ourselves thinking people as the liberal people as going in an orderly way from one state of mind to another and of making choices and making decisions and of being quite conscious because you know what goes on unconsciously well we're not conscious of so the little that we see about our internal life that's multi-system - and we that's a thesis of the book truly we greatly exaggerate the importance of system - in our lives and in human affairs in general now in a system one those are the fast thinking of the title of Thinking Fast and Slow and mostly I'll talk about one aspect of system one which is memory you know we have that marvelous organ between our ears it makes sense of the world second-by-second so that anything that happens sort of understand we we get the right ideas about it we anticipate what comes next all of this happens you know courtesy of that thing that we have or associative memory it creates an interpretation of the world as we go so I see that scene you see me this is really not something that we choose to see I don't choose to see you it happens to you and this is the characteristic experience that is associated with system one with automatic activities they happen to you you don't do them they happen and so events and stimuli from the outside world that create sensations automatically they evoke memories automatically so you know if I say 2+2 a number came to your mind you didn't have to ask for it you didn't have to decide to perform that computation you couldn't help carrying out that computation to save your life anymore then you could help yourself from reading a word bilbo adjust those things happen but system one doesn't merely call for you know well learn associations of this kind if I ask you well do you think it was really for preordained that World War one could occur would occur and for those of you who know anything about the history of World War one this instantly brought a lot of information to mind that happened automatically you didn't ask for it we have not only an interpretation of the world as it exists but we we can call out complex stories that would take a long time to unto the scribe and in a way they all come at once so you know if I ask you what are the chances of any changes in the filibuster in the next in the rules of filibuster in the next ten years something will happen will happen to you you know fair amount about verse now articulating it will be effortful but a lot will happen without your having to think about and these things really happen very fast and my my favorite example which is of course in the book is of I won't try to imitate it it's it's a male voice speaking in an upper class British accent and and sing a sentence and the sentence while the individual events in that individual brain are recorded continuously so that's that's the background that's a story the sentence is I have launched tattoos all down my back it takes about a third of a second and you get a characteristic brain response and the characteristic brain response is surprise and it has a clear signature if you think about what it takes for someone to be surprised by such an event it is be extraordinary you've got to identify the voice as an upper class British voice you've got to bring up the stereotype of upper class British man you've got to bring up the idea that it's unlikely that many of them have lodged the tools down their back that is an incongruity hence the surprise and that is detectable within less than half a second this is amazing and that is that is system one all of this happens you know unbidden you don't have to think about it it just happens to you and a lot of complicated things like that system one is not dumb so you know we tend to think of system two at the higher system but what we do really well we do with system one because skills our system one so driving when we drive it's almost effortless except when we take left turns into traffic or overturn cars on a narrow road almost effortless you can talk when you drive but so that system one it's a complicated activity and it is an activity that we perform almost without effort and automatically and there are many such activities there are intuitive skills we're very impressed by intuitive skills we're impressed by the skills of firefighters and chess players and-and-and great diagnosticians but all of us are very health skills at that level and many of them especially in the social domain we can recognize each other's moods we can serve someone you are tired you know I you can recognize how spouses move from one word on the telephone and you know many other things are that general nature so the skills are in system one in that automatic memory system that interprets the world so our mind what we think of as oh my the real products of our mind most of it is system what most of it happens through events that are experienced passively as you know my memory provides that information then we do something with it we articulate it we respond with it we we elaborate on it and that tends to be system - so what's the image that I'm drawing here many people have two systems and psychologist Jonathan Titus had a very similar idea and he speaks of the elephant and the rider I I propose another image and it's theme of a reporter or actually a whole bunch of reporters and an editor and the reporters are system one and the editor is system 2 and what happens if the reporter provides stories and the stories are ready-made but they haven't been approved yet they haven't been endorsed yet and then there is the editor the editor is busy but the editor just has time to have a quick look at the story and if it's okay it goes to print it gets endorsed and a lot of what system 2 does in my view is endorse system one and then impressions oh you know vague impressions become beliefs and and so the vague tendencies become decisions there are there is a lot that happens when system two becomes involved but the the action in many of these cases comes from system one now so in many cases the editor just you know checks the story in it off it goes it gets in those in some cases the editor stops the story and either for a minor rewrite or completely suppressed we'd better not publish this that happens a lot you know if youth talking with someone and you know you have that irresistible thought that this is a real idiot it's unlikely that you are going to say it so and it by the way effortful not to say it in some cases so this is system to then a different assistant to and and it's the editor suppressing something quite often the editor may say well let's have another story let's have another take on this oh let me reason very slowly and then you have the editor himself or herself going over the story and and recreating it so that's now that system one and let me add something else about that editor very central characteristic of system to system two is really lazy and and does it is really governed by a rule of least effort and there is a lot of evidence to that effect now there are larger individual differences in how lazy system one is system two is it's much lazier for some than for others and my best example comes from someone who is not of a lazy mind but my best example you'll see comes from someone in the audience frame Frederick and he has an example that this doesn't sound right Shane I apologize what I meant to say that train came up with a very good example and the example which I'm sure many of you familiar with there's a puzzle and the puzzle is the following a bat and a ball together a cost the dollar Tim the bat costs a dollar more than the ball how much does the ball cost and the beauty of this example is that a number comes to everyone's mind it's 10 cents and this is this is an associative reaction and you know most people will including those who don't say thin cents ultimately you know that's the first response that comes to mind the second beauty of this exactly that 10 cents is wrong and that it's very easy to see that incense is wrong because you know it's a bat if the ball cost 10 cents then the bat costs a dollar and 10 cents a total is 120 so that's false now I don't know the proportion at Yale but I suppose you know it couldn't be higher than at Princeton so about about 50% of Princeton students get that wrong in writing in a written test they dress 18 cents now this is I think a very important discovery and it's an important fact because there is something basic that you know about everybody who wrote then since they didn't shake you know if they had checked they would have left it blank they would have found the correct solution which is 5 cents if you're still working on it well they would have done something else something else with the power so system two is really does as little as possible so that's a sort of the image that I'm proposing you have those two systems system two is in control it can suppress like an editor you know not now another tool or not the story let's do something else let's recompute but by and large the action comes from system one proposing suggesting having impressions having feelings and become emotions that become intentions and become decision that become beliefs and if we want to understand how the mind works actually it turns out that we have better understand what are the operating rules a system one and I have already said something uh that well this by the way before I go on there is a basic heuristic that you can follow in trying to predict behavior doesn't always work heuristics don't always work but it it works a fear amount of the time which is to ask what is the first reaction what's the first reaction to a situation to a problem to a word the first reaction is very diagnostic the first reaction in the system one reaction it's the first emotion it's whether you approve or disapprove it's whether you want to approach or avoid there are many things that happen instantly withdraw the first reaction and and either that first reaction will be carried over directly into beliefs and actions and so on or it will be it will provide the anchor for what happens next so that even if it is not really endorsed it is still influential even a system to the editor has assigned somebody else to rewrite the story something of the original story is still there and so as a as a heuristic it's a useful to university now let me talk about about the operating characteristics of system 1 and what I will do is mainly focus on characteristics that explains failure perfect rationality I think of system 1 as a story teller and I'm using a lot of metaphors but by storytelling what I mean is system one sees connections between events and you have to think of it AB memory as you know vast network of ideas which are linked associatively which are linked not by mere associations but by specific links from cause to effect and from token to type and and what we have with that machine it looks for connections and it does this automatically one of my best examples is when I learned from the same fella bits in its in the Black Swan and and it talks about Bloomberg News on the day that Saddam Hussein was captured and I don't recall the exact sequence but at one stage the bond market went up and at that stage the headline very big headline was Saddam Hussein creates fears in the markets or reduces the bond market goes up then the bond market went radically down and there was a story Saddam Hussein your capture reassures the public the bond market what happens this is completely difficult you have a fact and the fact is something happened in the market it went up or it went down it looks for an explanation in memory there is a search for an explanation the explanation that has to be an event that is possibly potentially causally related and that happened earlier and that is sufficiently salient and surprising to be the cause now here you get the bond market doing something and anything that was going to happen to the bond market that day was going to be attributed to saddam hussein because that was an event which was surprising and sort of consequential and that's the way it works so we tend to tell stories those stories we don't even have to tell them they occur to us in that way the world comes interpreted and it comes interpreted in causal terms this emphasis on causality I can't emphasize causality enough because it really is a characteristic and the way that the system works looking for causes inferring causes and and working from causes forward so it tells stories then there is something else that happens that is a characteristic of system one I think which is that it tells the best possible story so it tells a story that is coherent and I call that associative coherence it makes sense makes sense in that you know it makes sense for an individual to be all good or all bad we really don't like the idea of Hitler loving little children or flowers though in fact he did this this bothers us because it is not emotionally consistent it is not associative we consistent we tend to look for stories that have that form of consistency and coherence now you can make a coherent story from very little information in fact the less information in some cases the easier it is to make a coherent story now what matters here is that subjective confidence the comfort that people have appears not to be determined by the amount of information the confidence that people have in their impressions and the stories that the system one is telling them confidence is determined by the associative coherence of the story by whether the story makes it internal sense if we have a good story we feel confident in it it's the internal contradictions that lower our confidence this is radically different from the rational way of assigning probability or to an event or to a story or to a hypothesis when we rationally assign a probability to hypothesis we weigh the evidence but here it's not about the evidence it's about the internal coherence it is really not about the amount of evidence we see that all over the place and research radical insensitivity to the size of samples radical insensitivity to the overall amount of evidence we have I've described it as a machine for jumping to conclusions and the you know the example really unfortunate that I can't think of any other one but you'll be able to think of another one I asked somewhere about someone who is a national leader and that national leader is intelligent and firm now is is she a good one and actually you have an answer intelligent infer that's really good you're already there you have an answer you have an answer as you go you're evaluating it now you know if the third would have been corrupt you'd change your mind but the first two words and by the way you wouldn't change your mind enough because it would have been worse if I had first said that she's corrupt and then intelligent and ferb that makes it worse then intelligent and firm makes corruption worse we jump to conclusions we form immediate impressions on the basis of very little evidence this will cause a failure of perfect rationality and many failures have that character system one tends to suppress ambiguity and not to recognize ambiguity so I have many examples of that but when I use most often is an approach the bank and when you hear an approach the bank most of you think of the bank as as a financial institution but if the previous sentence have been something about floating down the river the word Bank would mean something else and they're really the sentence and approach the bank is ambiguous the ambiguity is suppressed most of you are supposed see more banks and rivers and you decide I mean something gets decided you don't do it it happens to you and big you it is suppressed the solution is adopted and this is very characteristic of system 1 so there is a suppression of ambiguity and telling the best story possible this has important implications it has implication that we live in a world that is radically simpler than the real world they simplify the world as we construct stories about now I spoke of associative coherence and let me develop that a little bit and I already mentioned something that psychologist called the halo effect which is that the various traits that we assigned to an individual or to a group or to a society tend to be emotionally coherent they tend to make sense together in emotional terms but there are other manifestations so here is an experiment the experiment in the experiment people are required to evaluate the validity of a line of reason the validity of the cylinders and the syllogism is all roses or flowers some flowers fade quickly therefore some roses fade quickly valid or invalid it is not valid for those who are still working on it ah there it is not valid because it's entirely possible that all the flowers that fade quickly are not roses but it is true that some roses fade quickly now I forget the exact number but it's well over 70% of undergraduates say the reasoning is valid this is enormous ly important of the finding because it tells us something about about the way we think in in politics for example we have a conclusion the conclusion is true we believe that the conclusion is true and that is enough to make us believe in arguments that favor that conclusion this is a violation of what I call objectivity here the reasoning goes the wrong way from conclusion to this characteristic it explains something which seems at first to be the opposite of jumping to conclusions it is why in a serious sense it is really almost impossible to change people's minds about things that matter to them and if you ask yourself why you believe in what you believe be it in religion or in global warming or you know whatever else you believe why do you believe it we have been socialized to think that we believe in things because there's evidence to support them but this is not the way that we actually form beliefs we believe in these things because we trust other people who believe in them that's the main reason you know we have religious beliefs it's not you know we are not waiting for evidence to have those beliefs it but what there is is there is an emotional connection a powerful emotional connection between love and trust and belief and and other people believing and what what is really very important I think I had the occasion to speak about that to the National Academy of Sciences why why there is difficulty in conveying scientific evidence to the public that scientists tend to think that we believe in things because there is evidence to support them this is not the way that most people believe in things actually it's not even true of all scientists always but it certainly is not true of the public's that scientists are trying to address evidence really doesn't seem to work and why evidence doesn't seem to work seems to be because evidence does not resume the kind of evidence that you know scientists brain does not resonate very well system one system one needs stories preferably stories about individual cases preferably clear causal stories that have emotional impact it's very unfortunate in a way but that's the way I think things are so what makes us the same system one that makes us jump to conclusion when there is very little evidence makes us extraordinary resistant to change not when there is a lot of evidence but when there is an ingrained collection of attitudes and emotions and beliefs they are going to be held even against massive opposing evidence another characteristic of system one when we ask people a question they tend to do more than we asked them to do and there was an experiment most forty years old that had a big impact on me where people listen to words on speakers and they were asked to make a rhyming judgments to the words rhyme or not and here are two pairs of words and one is vote note they write and the other is vote goat are they rhyme too but people are much slower saying that both goat rhymes then vote note so what did they do they heard the word they spelt it and the mismatch on the spelling slowed them down in detecting the match on the rhyming they did something entirely superfluous or a computation was done which was entirely unnecessary this is the way that the system works it works in parallel it generates not sequentially like orderly reasoning but a lot of things happen in parallel and that one question evokes much more than one answer in the same way people are asked about the syllogism is it valid but what happened was that system one immediately detected it is true it is true and true and valid or associatively correlated and it's that correlation that caused people to answer the question valid incorrectly by the way the same undergraduates who fail the question about roses if you formulate exactly the same question in terms of X's and Y's they answer it with no difficulty whatsoever incorrectly most of them so it's it is the case that when an incorrect answer comes very readily to mine incorrect answer being a correct answer to an into a different question we tend to adopt that and we answer questions that we haven't been asked this turns out to be quite an important mechanism in judgment and in decision-making I'll give you well I have time maybe for both examples but at least one okay I'll take uh I I speak of a young woman named Julie and she is a graduating senior and I'm going to tell you one fact about Julie which is that she read fluently when she was four and now I'm asking you what's a DPA right the striking thing is that actually although you may be embarrassed to admit it a number came to your mind and you have an idea for GPA on the basis of that information no it's not precise but you know it's certainly over more than 3.2 and it's seen on less than 3.9 and you know it's actually agreement on those kinds of things is remarkably close because we're in a same culture and we understand each other now we absolutely I think understand the mechanism that creates this impression and the mechanism is that when we hear she read fluently at age 4 we have an impression of how precocious she was now we would ask how precocious was Julie there are us what's a GPA now 20 years later or something but you can go from the answer to one to the answer to the other directly and it turns out that people's answer to what sorry PA her GPA is about as extreme as the judgment of how precocious she was in in her reading that's the way that people do this do is not the right word that's the way that things happen in people's mind we have a matching rule and people out you know you could you could match Julie's reading age to a lot of things you know like two how many how tall a building would be as tall you know in New Haven would be as tall as Julie as Julie's reading speed people will give you a number of a number of rules for that building that is a fundamental ability of system one and one that is often used to answer questions okay let me bring this to a close I could you know it's it's a long book and you know I could go on and on but but I think I think you get the point that I'm trying to make which is that we have an absolutely wonderful mind I mean you know it's just incredibly marvelous what it can do you know it can learn to drive it can learn to identify you know that that the particular combination of a voice and a statement is surprising it can do lot of great things it can provide an immediate diagnosis it can it can identify very good mood interest in intuition in short as possible intuition is marvelous but we also has an other mind that is really incompatible with the basic requirements of rationality as put forward you know as explained in decision theory you the basis in we can it is we have a mind that is not equipped for invariance because your reaction to fat-free or to fat food is not going to be the same it is the mind that is not equipped for dealing adequately with quantity of evidence because we tend to make up stories and evaluate the coherence of these stories and so the the verdict is really not a negative verdict than the human mind it's a complicated verdict but it's clear that the theory of rationality within decision theory or within the standard models of what rationality should think of is profoundly non psychological the psychological truth you know we don't know the truth but what I try to summarize in this book is not compatible with the rational model what I presented to you is not a theory but I hope it's a little bit on the way to a theory that that there is some internal coherence to the story that I've been telling you and so even if the story is not good if it is coherent you might believe it if I so thank you and I say we are having a reception right out there at 5:30 and a half 25 minutes for professor Kahneman meanwhile we have someone with microphones if you ask a question could you identify yourself first movies mental to the line or do you want to have a lot I think they might have teller getting out my name is Mike I'm the townie in New Haven you spoke of a wide range of free reactions of laziness using system to and I wonder if that applies to the wide range of people making momentous decisions some people can decide to buy a house and perhaps go too fast and some people just can't ever make up their minds yeah I mean that there certainly of large individual differences and actually Shane Frederick who who studied the bat and ball problem has also studied the implications of individual differences turns out that people who trek themselves and who don't check themselves are different people there probably is an optimum between analysis and paralysis that has to be sought and you know this is the holy grail for many people who deal in management theory is is to find how much analysis in the proper is a proper amount and when and when is there time to decide and there are there differences in situations some situations you know require quick decisions and they are largely individual differences my name is Craig I'm an economics student here and my question well you and Amos obviously pioneered a lot of this behavioral economics work currently what I've seen is the application of this work to policy especially Thaler and Sunstein they're very big promoters of applying what you've been able to find to policy where do you see behavioral economics going in the future in 5-10 years what what are the advances that we're looking for well thanks for the comment I think it is true that the great successes of behavioral economics in recent years have been in the domain of policy suggesting interventions and gasps dictator and cass sunstein call that libertarian but all those interventions that make it easy for people with a lazy system to to make decisions that tend to be good true and that's the main instrument but not the only one is manipulation of default so if you make it the default that say unless you check a box or unless you do something your organs will be donated if you died in an accident the rate of donations will be very high if you make a default that you don't know me and you have to track or do something in order to donate the rate of donations will be the difference is somewhere between you know 90% and 18% was a huge effect I should add that this work is absolutely not a continuation of the work that they were still seeing I did Amos Tversky and I did work on rationality primarily dick Thaler adopted that work and sort of made it popular and may behave your economics possible with it he contributed really the notion of what he calls bounded self control that he adds to bounded rationality and most of the nodules they work on the boundary between rationality and self-control by allowing people to be lazy to make a decision you ask me about the future well I I can proudly say I have no idea I have no idea because you know you know that behavior economics as a future at least shorter and that you know because very very good students are taking that as a field for graduate work and that mean that they're committed to that field for 10 or 15 years so that future is guaranteed what they will do with their time I don't know but because they are very good students of good University is very likely they'll do interesting things what those interesting things are I have no idea that we know what would be nice it would be nice to be able to do economics with behavioral economics I mean it would be nicely which you know it would be nice to have sort of a you know an idea for markets behave and so on which I don't think at the moment we really do it's more behavioral economics is still about individuals and about some phenomena that are ruled by the behaviors of individuals when it comes to markets I think there is a long way to go I'm sure that there are people working on it now I hope successful I don't know of any major successes until now the big successes behavior economics actually I asked my friend Nick Saylor and as I said the Guru of behavior economics what I called him a couple of days ago and I said look I mean I'm in a panic I'm going to Yale I'm going to have to talk to people vague through the economists what do I say what's happening in behavior economics and he sent me to a paper by an economist and he made a big point of that who is a very very good young economist but shetty who is at Harvard and is not a behavior occurs that is he doesn't describe himself as a miracle but when he does stuff on savings and tax and the impact of taxation on encouraging savings it turns out that he uses behavioural notions as a matter of course and that is the way that we hope the field will develop big fellow in saying that he hopes that the world behavioral the word behavioral will fall aside because all of economics you know might become behave I'm a psychologist so I don't I don't have professor and going yeah I'm a nursing student here so it's a great lecture but I I have a little question so you said it's not perfectly rational to favor an argument if the conclusion is true that correct am i I'm saying it is not rational to infer from from the truth yes I did but isn't that how signs work like if we have some theory and we do some result from this theory and if this result is true or it's closer to the observations and we favor this theory ah that's so long what what would be wrong in the theory in the context of theory would be to say the facts must be this because they fit the theory it would be to change what you consider or not or a fact to fit your fear and people losers scientists certainly that's this is what I am talking oh poor husky sophomore cognitive science student here I have a friend overseas who's a big fan of yours he made me buy him Thinking Fast and Slow and bring it back to Prague as soon as it came out and recently I talked to him and I asked him how he was and he was like terrible because he's double guessing now every decision he makes because of all the cognitive because of all the kind of devices that you introduced him to I mean it's a solid list right there are about 18 of those so my question is how would you suggest that we efficiently translate your cognitive biases research into a more perfect personal rationality because the checklist approach doesn't really work well I don't want to speak ill of your friend but he but he must have had a predisposition for doubt because many people have read the book it's not the most common reaction my my my suggestion is that you can read the book and be completely safe it will have no effect on you whatsoever it will it may improve and I think it might improve your ability to detect the mistakes of other people and I have that in mind in writing the book I call that educating gossip and I think that educating gossip is a very important function because what is the case is that we anticipate the gossip of other people when we make consequential decisions and if we anticipate intelligent gossip we might make better decisions and if we anticipate stupid gossip and so making gossip more intelligent is a worthwhile objective and reaching the language I think is a worthwhile trick and that's you know that I don't think this is really another self-help book and you know and of course it's very easy for me to say because I've been studying it's not only I've read the book I wrote it then they prove my thinking at all um my name is uh this is for you my name is Michael Alcon um huge fan of your work read the book numerous times and um everything that you just talked in the book resonating everything pretty because we're fairly clear there was one part of the book which left me with questions is the between page yeah I actually have a whole list of notes with hope bokya page 27 28 you said when talking about prospect theory you said that the one thing that prospect theory cannot deal with is complex emotions like we got in disappointment and obviously these have an immense influence on the way we perceive loss and obviously you can predict the future of next 10 years what's going to happen in research but what do you think is the next stage going beyond prospect theory you know that what prospect theory is you know more than 30 results so the next stage is now and then there'll be and and that there are elaborations on prospect theory and clearly improvements of it so Matt you rabbinic Berkeley has published theoretical papers that clearly enrich the theory so they enrich the concept of what the consequences and and they enrich the concept of utility so that it's attached and usually it's much richer than what we had in prospect theory I'm not sure that it's going to replace prospect theory because basically what what happens and it's you know it's luck when it happens it's not prospect theory so great it's it's got a couple of ideas that are really useful and that people can apply to many things and loss aversion being one of them and I you know the waiting from over waiting it low probabilities being another and those ideas are very useful and they are going to go and being used what happens next I have no idea really impossible to tell you know it was impossible to tell before prospect theory that it you know that it would work as it did are they impacted dead and you know it would be easy to imagine certainly if we publish the same article word-for-word in a psychological journal it would have had no impact on economics so you know there are many lot factors I have no idea what I study is how we make decisions unconsciously and from what I understand your system one is about rapid unconscious decisions and system two is about slower conscious decisions but is there a role for decisions that we make unconsciously but over a longer period of time I mean this there is a lot of research going on at the moment on on this issue of unconsciousness surgeons it's quite on traversal among among people in the field whether there is you know the evidence is compelling that people make better decisions on consciousness or not some of my friends believe yes and others believe now and you know I'm not sure it's we can expect some progress on that issue within the next ten years because very good people study and it's you know it's considered an important topic but altogether the issue of conscious and unconscious is very controversial now and you know it's a big topic and I have no idea where psychology is going to be on those read in those respects five or ten years from now I'm senior economic student here and my question is about in your lecture you spoke about how system 1 and to operate on a micro level within the individual human brain but throughout history and whether or not these accounts are true or not whole societies have been painted as either thinking fast or thinking slow the classical example of Athens and Sparta comes to mind do you believe that there are these broad cultural distinctions and if so where do they emerge from well this is really not my field I would there are certainly differences even within a cook you know within our culture and within our society there are class differences the education effects on the relative weight and and even I would say popularity at system 1 lose the system to there people are proud of making gut decisions and they're people who are embarrassed by it and there are cultures which value by a lot in this culture for example we tend to value decision makers who decide quickly it's considered a sign of competence concerns you lose points by taking time so I can readily imagine cultures in with that would not be the case in with thinking carefully would be valued but in this culture it is not so I'm sure there are differences I don't know enough to discuss them in detail again here my name is Xander I'm a PhD student in psychology I have a question ever since my undergrad I've been I've been familiar with with your work but recently I I started reading books by um gegege answer I'm not sure if you familiar with him and and he kind of came up the notion that many of these biases and heuristics are evolutionary adaptive right that millions of years of evolution have taught us what you ristic sworkit depending on what kind of environment and that instead of weighing pros and cons we should really be thinking less in a way not thinking less and using less information and kind of relying on these biases and heuristics actually can lead to better decision-making so I was wondering if because at least in economics it seems that the view is kind of perpetuated that the comment diversity biases approach to judgment and decision making that it's viewed as a bias that needs correcting and my question was do you really characterize your work as as these things that the heuristics and things that you've identified through observation and experiment are things that actually need correcting and then whether it's okay for economics is to take bits and pieces from psychology and incorporate that into their model of rationality well you should know the background for those of you who don't have been good gig render is not a fan of my work and we will sudden quarrel publicly so I I don't really want to come in too much uh I I I would say this I have presented a story about system 1 and system 2 and the way that memory works and from that story heuristics are inevitable they just you know something like that must be the case that you will answer their own question and that it will be associatively related to the right question and so on so I don't think that the heuristics have been selected for the mind that we have has been selected for the heuristics are a side-effect of a mind that we have and and to my mind there is no evidence that anything else is the case so the broader view that I would see is let's look at you know how the mind ghent why the mind generates those heuristics and it turns out that you know if if you have in mind that computes more than it needs to then uh then you will get URIs --tx and it's it's sort of a very interesting debate now for for the experts and I'll be very brief there is a debate on whether people the beauty of heuristics being that they use little information this is the point that good has been making very eloquently my observation on that is that there is absolutely no need for the mind to focus on little information because we're very very good at digesting a lot of information in peril so it doesn't need to be fast and frugal if the mind is the way it is then here is the way I described it is if it is as I described it then you're going to get heuristics whether or not they were selected for okay I'm Aaron Girdler I'm a sophomore in a psychology major at the college I thought that one of the saddest and absolutely the funniest parts of Thinking Fast and Slow was the time when you and all the other researchers were trying to create an Israel the psychology textbook that would explain this theory and you fell under the planning fallacy and all fell apart horribly so you've spent a lot of time in academia and kind of various spots along the line there are there any things about the life in academia and being an academic that bother you that ways that you think the system could be improved by applying your own systems to it like what are the cognitive biases within academia that you see you know in a setting like that responses are usually have to be ready-made I don't have already made an answer to your question if you ask me you know what would I correct about academic life it's a it's a slow topic for me I would have to think slowly and I I can't there's no I my impression is that thinking about thoughts and decisions as products is a useful heuristic as there are many places and that includes committees and you know financial institutions governments but actually produce decisions when they produce judgments and the idea that you could impose some quality control and that some ways of doing those things are better than others that idea by itself is not fully implemented and it's interesting why does not and if anywhere I would think it might be more readily implemented in university than in other places but I don't know how if the conclusion is true becomes very very easy to believe the rationality can twist the rationale to support those conclusions actually a Shan talked in one of our classes about how if you present something in a certain type face italics versus non italics people are more likely to believe it's true so in terms of that sort of a lot of traditional economics has become very mad Mathematica Matta sized it's sort of a version of physics mV are you optimistic that despite you know behavioral economics being a much more true description of how people think and make decisions that that will be able to sort of suppress the system want tendencies and most people who do believe in traditional economics right I don't have to answer this because you know I'm a psychologist I really and I don't have any clear ideas of where psychology is going but I certainly had no idea hi professor my name is my name is Kevin I study public health here and it seems like decision making has gotten much more informed over the last several years right it used to be that kind of at least organizational level decision making was made by very few people and now we have teams of analysts big data computers helping with that decision making and it seems like even at the individual level there are more and more of these decision making tools so do you think kind of taking this step further this proliferation of decision making aids will ever lead us towards classical economics towards the perfect ration Harding alright I think that's a development that we can see occurring and I think that the silver bags will improve the quality of the sir there is for example the regulation efforts of behavior economists such as the castle state have been in the direction of making easier for people to make rational decisions for example by enforcing that all mortgages to be comparable to be reported and described in terms that allow very quick and ready comparison I think purchases of cars are going to be you know the Internet is certainly going to improve the quality of this it is happening already it is happening with Yelp it is happening you know with with reviews and it's going to happen so on that I think we can be quite optimistic um my name is Robert black I have a background in sociology and economics um there are two social sciences that emphasize the idea of a rational actor economics and political science and economics the idea of a rational actor you know it generally has an optimistic conclusion that is good for society when people act in that manner generally now in political science so let's going to make that statement but it leads me to ask why does the rational actor act like the irrational actor in the first place and what can we learn from that knowledge now what is it about human nature that leads or brings people to act in the manner of a rational actor and what can we learn if we ever could figure that out well we have that idea of ourselves as reasoning means reasonable games and so certainly within this culture true there are cultures where this is not the case but within this culture along with many other things that our value of the ability to reason is valued so you know we have contradictory values of you are decision makers to decide quickly but we also have want people to have good reason to be able to defend their positions so there is a pressure for acting rational whether there is a pressure for being rational I don't know but there certainly is a pressure for so forward to having defensible defensible views the the view of you know the pessimistic use of rationality is really linked more with selfishness and with rationality per se that is it's the idea of relentless selfishness that play the part I think in the pessimist you

Channel: YaleUniversity

Views: 71,173

Rating: 4.8829269 out of 5

Keywords: Daniel Kahneman, Yale, Rationality, Psychology, Psychology and Economics, Economic Decision-Making, Thinking Fast and Slow, System 1 and System 2, Heuristics, Intuition, Effortful Thinking

Id: MgQutgSwY88

Length: 90min 15sec (5415 seconds)

Published: Wed Apr 03 2013

Reddit Comments

[u/ThePrecariat]

One example: Say a person is looking to buy a piece of meat that is %20 fat, or %80 "fat free". Even though the two statements describe the exact same thing, people, in most cases, have a preference based on some false reasoning.

Paraphrased from the first 17mins of watching. A bit thick of accent, but fascinating topic.