PDF Summary:Thinking, Fast and Slow, by Daniel Kahneman

We like to think that we’re intelligent, rational beings who generally make good decisions. However, psychologist Daniel Kahneman says that in reality, the human mind is hasty, imprecise, and lazy. In Thinking, Fast and Slow, Kahneman explains how we make decisions, why those decisions are often wrong, and how we can work around our natural shortcomings to make better decisions in the future.

We’ll begin by describing the “fast” and “slow” systems of thought that Kahneman identifies. Next, we’ll go over the ways our thinking tends to be sloppy and biased, and why that happens so regularly. Finally, we’ll examine Kahneman’s research into happiness, and how a better understanding of ourselves can help support our overall well-being.

In our commentary, we’ll explore some evolutionary origins of cognitive biases, look at how the biases Kahneman highlights relate to additional biases, and compare Kahneman’s insights to those from other psychologists, such as Malcolm Gladwell and Barbara Oakley.

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(Shortform note: Anchoring bias may result in part from the phenomenon of psychological priming. When we are exposed to an idea, that idea activates, or primes, parts of our brain, and those parts of the brain stay active as we process further information. This can affect our thinking by anchoring us to the first idea we heard and to the mental connections we drew from it. To avoid anchoring bias, actively try to think of counterarguments or alternative options, and look for reasons why they might be better than the anchored information.)

Narrative fallacy: Kahneman says that people try to create coherent stories to explain random events. Then, because their stories sound plausible, people feel an unjustified level of confidence in their ability to predict future events. For example, two boxers might be so evenly matched that the outcome of their match could go either direction. However, sports pundits discussing the match will invent stories about how the loser buckled under the pressure, or the winner “wanted it more.” If those boxers were to have a rematch, the pundits will try to anticipate the winner based on the stories they previously created, even though the outcome will be just as unpredictable as before.

(Shortform note: The narrative fallacy comes from the natural human desire to understand and control, or at least predict, the world around you. For example, psychologists believe that conspiracy theories—extreme narrative fallacies that draw connections between totally unrelated events—are actually self-soothing anxiety responses. If there’s a group secretly orchestrating events (for instance, the Illuminati are popular scapegoats), that means nothing is ever truly random; therefore, any future disaster can be predicted and prepared for. While belief in a global, nearly omnipotent group like the Illuminati might seem terrifying, some people find comfort in having a tangible enemy to fight, rather than being at the mercy of random chance.)

Narrow framing: According to Kahneman, people tend to make decisions based on relatively small pools of information instead of considering the whole picture. There are numerous ways this fallacy can manifest. For example, in the planning fallacy, people tend to overlook all the ways a project could go wrong, and therefore underestimate how much time it will require—they only factor in information about how long it will take in an ideal situation. Another example is the sunk cost fallacy, which happens when people narrow their focus to getting back what they’ve lost on a failed endeavor. However, if they consider all of their options, they’ll see it’s better to cut their losses and invest their resources elsewhere.

(Shortform note: Narrow framing may be the unavoidable result of working memory’s natural limitations. Your working memory—where your brain stores ideas that you’re currently using to solve a problem or make a decision—can only hold a few pieces of information at once. Researchers disagree on exactly how many ideas you can hold at once, and it varies from person to person, but common estimates place the average working memory capacity at somewhere from two to four ideas. As a result, regardless of whether you’re using System 1 or System 2 thinking, it’s simply not possible to consider everything when making a decision.)

Two Theories of Decision-Making

So far we’ve discussed the two ways people think as well as a number of ways our conclusions can be imprecise and biased. Now let’s explore how Kahneman uses those principles to explain, in broad terms, why people don’t always make the best decisions. We’ll start by explaining expected utility theory, that traditional view that assumes people are rational and will always make the choices that benefit them the most. We’ll then introduce Kahneman’s prospect theory, which takes into account the ways that emotions affect people’s judgement.

Expected Utility Theory Assumes People Are Perfectly Logical

The traditional theory of decision-making, known as expected utility theory, asserts that people rationally calculate how much they stand to gain or lose in each potential situation. Then, based on those calculations, they make the choice that’s most likely to lead to the greatest personal benefit.

However, as we’ve already discussed, people are not purely rational actors. Therefore, Kahneman argues that expected utility theory is not an effective way to explain people’s actions.

For example, suppose someone presents you with two options:

1. An 80% chance to win $100, with a 20% chance to win only $10
2. A 100% chance to win $80

If you calculate the average outcome of the first option based on probability, its expected value is greater ($82 versus $80). Therefore, according to utility theory, people should always choose it. However, Kahneman says most people will choose the second option because they prefer certainty over the chance to win more money.

Expected Utility Vs. Expected Value

Kahneman describes the flaws of expected utility theory at length, but it should be noted that this theory was, itself, a response to an even earlier theory called expected value.

Expected utility theory emerged as an answer to a thought experiment called the St. Petersburg Paradox: a game of chance where, in theory, you could win an infinite amount of money, but are much more likely to win very little. Expected value theory states that, since there’s a chance of winning an infinite amount of money, it’s rational to pay any amount of money to play. However, this is clearly flawed reasoning: Nobody would pay billions of dollars just for a miniscule chance of winning even more.

Expected utility theory tries to resolve the paradox by pointing out that, beyond a certain point, more money is not useful; therefore, even infinite money has finite utility. Now that there’s a limit to the game’s potential benefit, it makes rational sense to weigh that against how likely you are to lose money when you play, and decide how much a round of this game is actually worth to you.

Prospect Theory Accounts for Human Emotions

If people don’t make decisions based on pure rationality and expected value, how do they make decisions? To answer that question, Kahneman developed prospect theory, which factors in various ways that emotions influence judgment.

The author summarizes prospect theory in three points:

1. You evaluate situations by comparing them to a neutral reference point. Your reference point is usually your status quo—the situation you normally experience—meaning you make decisions that you think will improve your status quo. However, your reference point can also be an outcome you expect or feel entitled to, like an annual raise. That’s why you can feel crushed when you don’t get something you expected even though your situation hasn’t actually changed.

(Shortform note: Arguably, your status quo is also an expectation: You expect your current situation to continue. So, we can sum up this aspect of prospect theory using the “equation” happiness equals reality minus expectations. This formula explains why you’re unhappy when reality doesn’t live up to your expectations: Your happiness is negative. Thus, according to this “formula,” the simplest way to become happier is to lower your expectations. In theory, if expectations = 0 (that is, if you have no expectations at all) you’ll be happy with whatever reality you have. That’s one way to approach what Tara Brach calls Radical Acceptance—not expecting or anticipating anything, but simply accepting each moment as it comes.)

2. Your evaluations are proportional, rather than fixed. Kahneman explains that you judge value as a percentage of what you already have. For example, rationally speaking, gaining $100 should always have the exact same value. However, going from $100 to $200 (a 100% increase) feels much more significant than going from $1,000 to $1,100, which is only a 10% increase. To extend the example, if you were already a millionaire, $100 wouldn’t even seem worth your notice—it would be a fraction of a percent of what you already have, and barely feel different from finding a quarter on the ground.

(Shortform note: These proportional evaluations make more sense when you consider that you often don’t need, nor even want, more of something that you already have a great deal of. This idea is closely related to what economists call the Law of Diminishing Marginal Utility: The more of something you have, the less benefit you experience from getting one more of that thing. This is why $1 is practically worthless to someone who already has a lot of money, but for someone in poverty, one more dollar might allow them to afford a meal or some other necessity. For another example, suppose you’re very thirsty; you’d greatly value a glass of water, but a second glass would hold significantly less benefit for you, and a third would have less value still.)

3. Losses of a certain amount trigger stronger emotions than a gain of the same amount. To give a fairly mundane example, the happiness you feel when a bartender hands you a drink is much less than the disappointment you’d feel if you spilled it. Kahneman says this phenomenon, called loss aversion, is a result of evolution: Organisms that treat threats more urgently than opportunities tend to survive and reproduce better.

(Shortform note: While Kahneman presents loss aversion as an irrational bias in our thinking, statistician Nasim Nicholas Taleb argues that it’s actually extremely rational. In Skin in the Game, Taleb says loss aversion is a symptom of our instinct to prevent ruin—a loss so great that it’s impossible to recover from. Taleb notes that opportunities for ruin-inducing losses are all around us, and that small losses can add up over time and ruin us. Therefore, it’s rational that we have strong emotions regarding losses: Logically, we should do everything we can to avoid even the smallest possibility of ruin.)

Kahneman also discusses some practical implications of prospect theory. Two key implications are the possibility effect and the certainty effect.

Implication #1: The Possibility Effect

Kahneman says that people will overvalue the mere possibility of something happening, even if it’s still highly unlikely.

As an example, consider which of these options seems more meaningful:

• Going from a 0% chance of winning $1 million to a 5% chance
• Going from a 5% chance of winning $1 million to a 10% chance

Most likely you had a stronger response to the first option, even though the objective increase in value is the same for both.

The possibility effect explains why people fantasize about small chances of big gains—such as when they go to casinos or play the lottery. It also explains why people obsess over worst-case scenarios, even when there’s only a tiny chance of those scenarios coming to pass.

The Possibility Effect Makes Sense for Extreme Events

Similar to our previous discussion of ruin, the Possibility Effect may be more rational than it first appears, especially when dealing with extreme situations.

When assessing the risk level of a negative event, it’s crucial to factor in both the likelihood of that event happening and its impact if it does happen. Therefore, going from no chance of an event happening (zero risk) to even a small chance (some risk) is, proportionally, an infinite increase in risk. For example, this is why many people argue against building nuclear power plants: While the odds of another event like Chernobyl are very low, the impact would be so catastrophic that people find even the possibility unacceptable.

We can also invert this idea to account for positive events, such as the above example of winning $1 million—going from a 0% to a 5% chance is an infinite increase in your odds of getting rich. Conversely, going from a 5% chance to a 10% chance is much less impactful; the possibility already existed, now it’s just slightly more likely to happen.

Implication #2: The Certainty Effect

Just like people overvalue the idea of a previously impossible outcome becoming merely unlikely, Kahneman says we also place too much value on the idea of a likely outcome becoming certain.

To illustrate this, consider the following situations:

• You’re in the hospital, and your prognosis goes from a 90% chance of recovery to a 95% chance of recovery.
• You’re in the hospital, and your prognosis goes from a 95% chance of recovery to a 100% chance of recovery.

Most likely, you felt better about the second than the first. This demonstrates how people overvalue absolute certainty, and undervalue outcomes that are almost guaranteed but not quite certain. A 95% chance of recovery is actually a great prognosis, but it doesn’t feel that way because the remaining 5% continues to bother you.

(Shortform note: Neuroscience can provide an explanation for why we value certainty so highly. When we face uncertain situations, specific regions in the brain become hyperfocused on potential threats. When this happens, uncertainty consumes parts of our working memory that we’d otherwise use for focus, creativity, and decision-making. Therefore, by eliminating uncertainty, we ease our anxiety and become better able to make thoughtful, well-reasoned choices. In other words, certainty doesn’t just make us feel more confident in our decisions, in many cases it actually allows us to make better decisions than we could while distracted by possible dangers and “what-if” thoughts.)

Happiness and the Two Selves

So far we’ve discussed Kahneman’s two systems of thought, as well as a number of ways in which our thinking tends to be biased and irrational. Now we’ll explore how those principles culminate in two distinctly different “selves” within each of us—a theory that Kahneman developed while researching the topic of happiness.

We’ll begin this final section by explaining Kahneman’s concept of two selves: the experiencing self and the remembering self. We’ll then describe various ways in which the remembering self (and our tendency to focus too heavily on it) skews our reasoning about our own happiness and well-being. We’ll conclude with Kahneman’s suggestion that both selves are important, and that we must learn how to balance their needs.

The Experiencing Self and the Remembering Self

Kahneman identifies two distinct aspects of how we process happiness and experience:

The experiencing self lives moment-to-moment, feeling pleasure and pain as it happens. This self measures happiness by keeping a running total of your positive and negative feelings as they occur; the more positive the “sum,” the happier you are.

(Shortform note: As we’ll discuss, people tend to focus very heavily on the remembering self and neglect the experiencing self. One way to get more in touch with your experiencing self is to practice mindfulness meditation, which trains you to accept each moment-to-moment experience as it happens, then let it fade away naturally—you don’t judge the experiences as “good” or “bad,” and therefore you don’t try to consciously remember the good experiences or block out the bad ones.)

In contrast, the remembering self reflects on past events, and only evaluates them once they’ve passed. As a result, it measures happiness very differently from the experiencing self. Kahneman identifies two key patterns that the remembering self uses to evaluate past events:

1. The peak-end rule: This measurement depends mainly on an event’s peak intensity (positive or negative) and how it ends, not an overall average of how it felt. For example, a musical with one excellent song and a strong ending is likely to earn good reviews, even if the majority of the show is mediocre.

(Shortform note: The peak-end rule has significant implications for how we think about our relationships. We tend to view relationships—whether current or past—through the lens of a few key moments, and evaluate the entire relationship as positive or negative based only on those moments. However, you can intentionally create more of those moments to help you remember the entire relationship more accurately. One effective way to do this is simply by diversifying the experiences you and your partner share together. For instance, instead of going to the same bar or restaurant every time you go out, make a point of trying out places you’ve never been to; each of those new experiences will have its own peak and end moments to remember.)

2. Duration neglect: How long something lasts has little impact on how we remember it. For instance, two people with similarly painful injuries (say, ankle sprains of equal intensity) will feel roughly the same about those injuries after the fact, even if one person only needed a month to heal while the other took six months to get back to full health.

Counterpoint: Duration Has an Indirect, but Significant Impact

As a counterpoint to Kahneman, a study from 2020 found that the duration of an experience does have a significant impact on how we remember it, but the effect is indirect. While the researchers agree that people only remember key moments about an experience, how long the experience lasts changes how they remember those moments.

Applying this study to the previous example, two people with painful injuries will have similar memories about their experiences: They’ll remember only a few key moments, regardless of how long they were injured and in pain for. However, they’d remember those key moments differently. For instance, the person who took six months to heal might remember their most painful moments as significantly worse, because when recalling them, they felt fatigued and frustrated (due to their lengthy healing process). The person who only took one month to heal might remember those painful moments as being less severe, as they were better able to cope with those moments. Conversely, the person who took longer to heal might remember those moments less intensely because they’d gotten so accustomed to the pain already.

The Remembering Self Skews Our Judgement

Kahneman says that, because of its reliance on System 1 thinking, the remembering self distorts how we measure our own happiness, leading us to believe our lives are better or worse than they really are. Furthermore, because we make decisions by using our memories as reference points, we tend to heavily weigh decisions toward the remembering self and overlook the needs of the experiencing self.

Some key flaws in the remembering self’s reasoning include:

Needless suffering: People often make choices that cause the experiencing self to suffer, but end with rewards that the remembering self will enjoy (due to the peak-end rule). For example, boxers regularly suffer through harsh training and brutal fights just for the chance of a memorable victory. While this may seem reasonable if good memories will strongly outweigh bad ones, Kahneman argues that the experiencing self’s pain still negatively impacts your overall happiness, and it’s better to avoid such suffering whenever possible.

(Shortform note: Objectively speaking, your past experiences can definitely impact your current happiness and well-being—consider how a sprained ankle affects your happiness regardless of whether you know how you hurt it. To further illustrate Kahneman’s point, research shows that people who experienced childhood trauma can suffer from ongoing physical and mental PTSD symptoms, even if they don’t remember the traumatic experiences. Similarly, you might have aches and pains from old injuries you don’t remember getting, or certain situations might put you on edge for reasons you can’t explain.)

The Focusing Illusion: When trying to evaluate their overall happiness, people place too much emphasis on whatever’s currently on their mind—in other words, whatever the remembering self is thinking about at the moment. For example, suppose a couple is going through a rough patch; they might evaluate their entire marriage as a net negative because they’re only remembering the problems they’ve recently had, even though both partners are generally happy with each other. On the other hand, if someone specifically asks how good their marriage is when they’re not fighting, that would shift their focus and probably change their answer.

(Shortform note: One possible way to mitigate the focusing illusion is to consider the same issue while you’re in various different moods or frames of mind. Apocryphally, ancient Persians used to deliberate over important decisions twice: once while drunk and once while sober. They did this to shift their focus and consider different aspects of a situation. Supposedly, only a decision that seemed wise in both states (drunk and sober) was acceptable. While it may not be advisable to get drunk every time you have to evaluate a situation, there is value in reconsidering a decision later, especially one made in an emotional moment—you may find that you make a different choice once your feelings have settled and your focus has shifted.)

Inaccurate Predictions: Kahneman says that people consistently overestimate how much changes will affect their future happiness (positively or negatively) because their current remembering self overestimates how much their future experiencing self will think about those changes. In reality, people quickly adapt to new circumstances and stop thinking about them at all. For example, people commonly think they’d be happier if they had more money. However, once they achieve their financial goals, that level of wealth becomes their new normal and their happiness settles to the same level it was at previously, at their old normal.

(Shortform note: These inaccurate predictions about the future lead to a phenomenon that psychologists call the hedonic treadmill: People chase after something they think will make them happy, enjoy a moment of pleasure when they get it, but quickly return to their previous level of happiness. They then start chasing the next thing in order to recapture that feeling. It’s referred to as a treadmill because people constantly “run” after happiness, but always end up in the same place emotionally. The same is true of negative experiences—after a brief period of feeling upset or angry, people go back to feeling how they did before.)

Conclusion: Both Selves Are Important

Kahneman urges you to find a balance between these two selves, because focusing too much on one or the other creates problems.

Focusing only on the remembering self invites unnecessary suffering. If you only value the remembering self, you might endure decades of pain in the hopes of a brief period of happiness at the end. Conversely, you might avoid long periods of happiness because you’re afraid they’ll end poorly.

For example, you may choose a career you don’t enjoy simply because it pays well. You would then devote the majority of your life to something that makes you unhappy because you think it will allow you to enjoy the relatively brief period between your retirement and your death.

On the other hand, Kahneman warns that focusing only on the experiencing self ignores the potential for lasting harm that some moments can bring. Therefore, this approach can lead to shortsighted decisions that maximize your immediate pleasure while harming your future self.

In short, both selves are important. To maximize your well-being and happiness, Kahneman says you must consider the needs of both your experiencing self and your remembering self. This means you must weigh the moment-to-moment experiences of living against the long-term value you’ll derive from your memories, and find a balance where you can be satisfied both in the present and in the future.

Be Content With the Present, Yet Excited for the Future

Kahneman’s advice to balance the needs of your two selves echoes what Daniel Z. Lieberman and Michael E. Long say in The Molecule of More: Long-term happiness requires you to balance excitement for future possibilities with contentment with your present circumstances.

The authors explain that many people spend their lives pursuing “more”—more money, more possessions, more extreme experiences, and so on—because getting what they want provides a pleasurable rush of dopamine. However, dopamine keeps you focused on future possibilities; you need to engage more present-focused areas of your brain to enjoy what you already have.

Lieberman and Long say the easiest way to find this balance is to look for a career or hobby that demands your full attention in the present, but also gives you future goals to work toward. This works because activities that keep you focused will stop you from thinking about the future, while having milestones to look forward to helps satisfy the dopamine-driven urge for “more.”

Painting is an excellent example of this. Each brushstroke demands the artist’s full attention, yet the artist also needs to have an idea of what the painting will look like when it’s finished—that final product is the goal they’re working toward.