Think Difference

An engaging book by a Nobel laureate that could leave the discerning reader even more so

Nobel Committees are no great fans of intellectual hybridisation. So when I saw Daniel Kahneman, a psychologist, win the prize for economics in 2002, I was awestruck: was the new millennium ready to cast off the old? Was this a Mu’tazilite moment, with failures of rationality suffering such open exposure that conventional wisdom was bound to be challenged one way or another?

Kahneman has spent a career in academia looking at slip-ups of the human mind, and shows what these imply to how we look at the real world in his fascinating book, Thinking, Fast and Slow. ‘Fast’ thinking means intuitive thinking, often emotional and jumpy, as in Malcolm Gladwell’s Blink. In contrast, ‘slow’ means deliberative thinking, often analytical and logical, as in algebraic calculations. As you’d expect, fast thinking results in plenty of screw- ups. But Kahneman draws on Nassim Nicholas Taleb’s The Black Swan to show how slow thinking, if led by fast, is fallible too. ‘Taleb suggests that we humans constantly fool ourselves by constructing flimsy accounts of the past and believing they are true.’ What you get is an exaggerated sense after something dramatic happens that you could have seen it coming; Kahneman’s own examples range from a freak flood in Bob Dylan’s hometown all the way to 9/11 and the Great Recession seven years after.

The professor won his Nobel for work on human irrationality done in alliance with the late Amos Tversky. It yielded Prospect Theory, a theory so elegant that it sounds dazzlingly obvious in retrospect. Any economist could’ve seen it coming. But then again, with human rationality a basic assumption of economics, the incentive to look away was sizeable; why admit a wobble that’s not even a squabble? What the 18th century Utility Theory had overlooked, they pointed out, was a behavioural kink called ‘loss aversion’: ‘When directly compared or weighted against each other, losses loom larger than gains.’ It’s simple. People hold reference points in mind, and just as a hand kept in ice-cold water feels nicely relieved and falsely warm if dunked next in plain water, what often determines a decision is how a resultant change in status feels, regardless of the real difference. Offered a choice between winning 100 bucks if a tossed coin turns up heads and straightaway getting 46 for sure, people tend to choose option two. This, despite the fact that half a 100-buck chance implies a rational expectation of 50, four bucks more. The prospect of ‘losing’ 46 looms larger than that of gaining 50. And, if this is consistently so, then economists need to re-examine the world through new lenses, even if their utility-stilted view still works—as Kahneman readily admits—for abstract analysis.

What Kahneman does not address is the prospect of people smartening up. To the extent that loss aversion corresponds with the sort of conservatism that keeps people from ‘risking’ a move towards rationalism, positivists are convinced that it can happen. After all, there is really no saying when human affairs make a sudden shift towards a new ‘equilibrium’—as in Bhaskar Chakravorti’s The Slow Pace of Fast Change—that puts brains to better use.

If people are poised for any such leap, Kahneman may argue, it remains secret. For now, one hair splitting phenomenon in evidence is how people’s ‘remembering self’ overpowers their ‘experiencing self’, despite one being fuzzy and the other sharp. In another lab experiment, the professor had subjects’ one hand kept under icy water for 60 seconds and taken out to be swaddled in a warm towel, and then the other hand placed in equally chilly water for an equal duration followed by an extra 30 seconds with less-chilly water let into the tub. Given a choice of repeating either the 60- or 90-second ordeal, most opted for the latter. This is absurd, since it means extended discomfort. ‘Why would people willingly expose themselves to unnecessary pain? Our subjects left the choice to their remembering self, preferring to repeat the trial that left the better memory [of climactic relief], although it involved more pain.’

Not to imply that one self is invariably more sensible than the other, or that time should lace (or space constrain) all thought; it takes no thinking to choose, say, a short burst of orgasmic sex over a long session of soporific sex, and you won’t fault your remembering self for its obsession with la finale. Who knows, rationality could turn out to be a many-splendoured thing, and your future-focusing self, the most rational of all. There’s hope yet.

Daniel KahnemaneconomicsNobel Laureate