Next to my bed is a large stack of books, most of which I will never read. I pick them up on occasional prowls through the local bookstore, or buy them based on a book review. The problem is that I am far more ambitious when I buy books than when I want to read them. Recent choices include “Upright, the Evolutionary Key to Becoming Human,” “Mycophilia” (about mushrooms), and “Mr. Gatling’s Terrible Marvel” (about the history of the Gatling gun). However, I promised myself that I would make an honest effort at “Thinking Fast and Slow” a well reviewed book about how we think. But about half way through it, I raised the white flag and hoped that perhaps there was an old Vanity Fair nesting amongst the dust bunnies under the bed.
Beside, I think that I’ve got the hang of the book. The author, Daniel Kahneman, a psychologist, makes a pretty strong case that our exquisite brain, the 800 pound gorilla at the top of the food chain, basically relies on a mish-mash of biases, irrational “rules of thumb” (formally called heuristics) and stereotypes. Here it is in a nutshell. Kahneman describes two different patterns of thinking. System 1 is our fast, automatic and emotional pattern of processing information. In contrast, System 2 is slow, effortful, logical and conscious. We would like to think that System 2 is the basis of human intelligence but here’s the problem. System 2 is just plain lazy and defers to System 1 whenever it can. In the meantime, System 1 struggles to keep up with the deluge of input and is forced to make quick and dirty decisions on incomplete information. System 1 lacks the discipline to look beyond the surface and relies on “WYSIATI,” an acronym for “what you see is all there is.” Basically System 1 desperately tries to stitch together a plausible story line from immediately available information, and in its rush is totally vulnerable to all sorts of biases, fallacies, stereotypes and prejudices. The recent movie Moneyball contains a great example of Systems 1 and 2 at work. A room is filled with grizzled baseball scouts who make System 1 comments such as, “He waddles like a duck, he’s no good,” or “He’s got an ugly girlfriend, and an ugly girlfriend means no confidence. Don’t draft him.” That is pure System 1, which contrasts with the GM, Billy Beane, who has a System 2 approach that focuses on a detailed statistical analysis of on base percentage.
One of the many biases of System 1 is overconfidence. Not surprisingly, overconfidence is a particular problem among people who feel powerful. This is a troubling chain of events for our elected officials. We presumably elect presidents based on their careful, logical thinking – we’re hoping that they are endowed with a robust System 2, but the power that comes with the election puts them on a slippery slope of an overconfident System 1. Hence we should not be surprised when George W. Bush says, “I don’t spend a lot of time taking polls around the world to tell me what I think is the right way to act. I’ve just got to know how I feel.” Yikes. And then as voters, we presumably use our own System 2 to select our candidate. But sometimes the issues are too complicated for System 2, or System 1 has an over ride button. I am reminded of my father in 2004, when his System 2 was just badgering him not to vote for George W. But Dad was a life long Republican, as was his father, his grandfather, and great grandfather, who was a paymaster for Abraham Lincoln. To vote Democratic would be a major upheaval of his self-image, and would throw his carefully constructed System 1 into chaos. He struggled, but he found a work-around. After he watched the convention, he said, “I really like that Laura Bush. I think I’ll vote for her husband.”
Kahneman first entered the financial world when he realized that System 1 is particularly pathetic at assessing risk and probability. For example, we typically assume that good outcomes are a result of skill, either ours alone or the experts that we hire. It’s an ego thing – we consistently underestimate the role of luck in almost everything that we do. This is a pernicious effect in estimating stock-picking skill. Money managers and hedge fund guys receive luscious year end “performance-bonuses” which may just reflect their luck in a given year. This illusion of skill is deeply ingrained in the financial world. In fact, a lucky monkey throwing darts is just as likely to be eligible for a bonus.
It’s all very depressing until Kahneman points out that System 1 actually does a mostly brilliant job considering the over-whelming work load and time crunch, and the best that we can do is make sure that our System 2 is not so damn lazy. Think of your System 2 as your family dog, who basically sits around all day, totally sacked out on the couch until you get him roused for his daily walk – his only mental stimulation of the day. Ideally, you want a dog that is self-motivated and rushes around sniffing and exploring.
After reading Kahneman’s book, I have a better sense of my System 2, which I need to rely on as I delve into a work project, typically an analysis of some medical technology. I feel like my System 2 is a hibernating bear in the zoo, and I have to throw tasty marshmallows of information through the bars of the cage, hit him on the nose and hope that he looks up and shows a spark of interest.
“Hey, System 2, I need you for a project. System 1 says that you won’t believe what Medtronic is up to this time. You won’t believe it. They want to implant something into the brain.”
The lazy bear might show some initial interest, but then snort and roll over. Time to up the ante. “Yo, System 2, wake up, I’ve got another project on your favorite topic – incontinence. This will give you the unique opportunity to be the big fish in the small pond of incontinence expertise. In fact, I bet you could knock this one off in no time.”
Finally, thank god, a response, with a huge heave-ho, the bear rises, shuffles over to the cage and sticks his nose through the bars. Now I have to act fast, since once I’ve got my System 2 up and running, I have got to keep it running, and so my typical work pattern is to plow through the project without taking any breaks. Working in fits and starts would only allow System 2 to go back into hibernation. And then when I finish a project, I know that I have to give myself a couple of days of dinking around before I can fire up the lazy bear again.
About two years ago, I retook the SATs after a 45 year hiatus in an effort to understand the hazing ritual that college-bound teenagers must endure, and to see if my accumulated life skills would improve my meager test taking skills. Now as I look back on it, I think one component of the SAT test is whether or not you can engage your System 2 for a grueling 4 hours, particularly when the material is so relentlessly boring. The SAT test is a constant battle between the two systems, and even though you might want to rely on System 2, time constraints force you to use the intuition of System 1 to answer some questions. Therefore, a critical test taking skill is the ability to recognize which questions require triage to System 2. The SAT developers know this, and pepper the test with trick questions designed to lull your System 1 into a smug complacency.
Here is a sample math question:
- A bat and ball cost $1.10
- The bat costs one dollar more than the ball.
- How much does the ball cost?
If you answered $.10 you are in good company – some 50% of students at Harvard, MIT and Princeton similarly relied on System 1 and got it wrong. It’s just that $.10 looks so intuitively right, but if the ball costs $.10, then the bat would cost $1.10, and together they would cost $1.20. The correct answer is $.05. I can imagine System 2 snickering, “System 1, you are such a dumb fuck, I can’t believe you screwed up such a gimmee! I would have gotten that in seconds.”
System 1 might respond, “Okay, if you’re so damn smart, you come up here on the front lines and take over this triage job.” The problem is that System 2 never will – it’s just not proactive.
I remember one specific question on the math section of the SAT that involved using some sort of chart to calculate the total number of hours that students studied over the course of high school, factoring in vacations and Institute Days. This was clearly a job for System 2, but try as I might, System 2 just refused. I felt that System 2 was saying, “Look, I hung tough on that dreary reading passage about the difference between Doric and Corinthian columns, but I’ve had it. This is bullshit. I’m outta here.”
I pleaded, “C’mon, stay focused, we’ve just got another hour.”
System 2 gave me one last contemptuous look and said, “What part of ‘no’ don’t you understand?” and then shuffled off.
Here was an example where Systems 1 and 2 were in perfect harmony; they both thought the SAT was total bullshit. I agreed with them. I left the question blank.
The missing words in the following poem are anagrams (i.e. share the same letters like spot, post, stop) and the number of asterisks indicates the number of letters. Your job is to solve the missing words based on the above rules and the context of the poem. Scroll down for answers.
Everyday we ***** along, oblivious to what hardworking brains do
Based on the emotional and intuitive System 1, and the lazy and slothful System 2
Beware of relying too much on System 1 because here’s what’s at *****
Stereotypes and faulty logic are just some of the mistakes you’ll make.
If money managers think they’ve got the skill it ***** they’ve misunderstood
Because of dumb luck, a monkey throwing darts at a board might be just as good
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Skate, stake, takes
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