by Daniel Kahneman is professor emeritus of psychology and public affairs at Princeton University’s Woodrow Wilson School He shared the 2002 Nobel Prize in Economic Sciences and is notable for his work on the psychology of judgment and decision-making, behavioral economics.*
He is the author of the best selling book, Thinking, Fast and Slow. Kahneman’s book presents his current understanding of judgment and decision making, which has been shaped by psychological discoveries of recent decades. In short, subjective judgments are biased.
Here are a few of his ideas you can chew on.
“A general limitation of the human mind is its imperfect ability to reconstruct past states of knowledge, or beliefs that have changed. Once you adopt a new view of the world (or any part of it), you immediately lose much of your ability to recall what you used to believe before your mind changed.”
Observe how your narrative changes once the football team you said was going to win doesn’t win.
I’ve always wondered why gossip is a national past time for so many. According to Kahneman it turns out that many of us enjoy talking about the mistakes of others rather than recognize our own.
Still the Professor puts a positive spin on Gossip- ” Improve the ability to identify and understand errors of judgment and choice, in others and eventually in ourselves, by providing a richer and more precise language to discuss them. In at least some cases, an accurate diagnosis may suggest an intervention to limit the damage that bad judgments and choices often cause.” I bet that would be a popular strategy- Let’s have an intervention.
“We underestimate how long a task will take to complete resulting in an irrational perseverance and a planning fallacy.” Yes, this is common, especially for us Entrepreneurs.
Kahneman says that we are quick to jump to conclusions because we give too much weight to the information that’s right in front of us, while failing to consider the information that’s not currently in our line of vision. Sort of like a blind spot. This can be especially harmful when it comes to buying the hot stock of the day. This can also be called the halo effect, where the stock can do no wrong. This works until something goes wrong. Anybody remember Enron?
My recent research into the study of decision partners has led me to a hypothesis, which suggests that clarity can often be gained when talking about our challenges and pending decisions with others. Sometimes we share with a personal decision partner, which often is our spouse, friend, or family member, or sometimes we go to professional decision partner, like a financial advisor, attorney, or medical doctor who has the technical resources, and can help implement our decisions.
I believe this is important, because of the various biases we all have. As Kahneman suggests, we are often confident even when we are wrong, and an objective decision partner offers the potential to detect our errors more easier than solo decision makers. Especially in the crazy emotional land we call money.