About halfway through last year I realised that pretty much every other management book I was reviewing for this website quoted Daniel Kahneman. He’s an impressive man – a decorated academic (click here for the full biography) and has won the Nobel prize for economics.
Kahneman says in the introduction that his hopes for the book were “to enrich the vocabulary that people use when they talk about the judgments and choices of others, the company’s new policies, or a colleague’s investment decisions.”
His method in this dense but at the same time surprisingly easy-to-read book is to address different aspects of our biases and judgements in short chapters, typically 10-20 pages, with each chapter then ending with a summary applying it to everyday situations.
The cumulative effect of this is to cause the reader to seriously question a lot of what he or she has taken for granted when it comes to making decisions or assumptions about life. In the chapter: The Illusion of Understanding, for instance, Kahneman says that “the core of the illusion is that we believe we understand the past, which implies that the future should also be knowable, but in fact we understand the past less than we believe we do.”
In part this comes from what he calls “hindsight bias”. It’s when we look back at an event and believe we saw it coming before it happened - it’s how everyone feels about the financial crisis now, or the OJ Simpson trial. In the case of 9-11 “we are especially ready to believe that the officials who failed to anticipate it were negligent or blind.”
The reason for this is that “the mind that makes up narratives about the past is a sense-making organ. When an unpredicted event occurs, we immediately adjust our view of the world to accommodate the surprise.”
The implications of this are various, and most of them aren’t good. We are “prone to blame decision makers for good decisions that worked out badly and to give them too little credit for successful moves that appear obvious only after the fact” (He calls this Outcome bias).
The result is that “decision-makers who expect to have their decisions scrutinised with hindsight are driven to bureaucratic solutions – and to an extreme reluctance to take risks.” At the other end hindsight and outcome bias “bring undeserved rewards to irresponsible risk seekers, such as a general or an entrepreneur who took a crazy gamble and won.”
This feeds through to stories about business, and the leaders we look up to because they have been successful, reading about them to try and learn the methods they used, but Kahneman says that becomes
“…a simple message of triumph and failure that identifies clear causes and ignores the determinative power of luck and the inevitability of regression.”
[There’s another brilliant chapter on regression to the mean]
“These stories induce and maintain an illusion of understanding, imparting lessons of little enduring value to readers who are all too eager to believe them.”
There are a lot of quotes in this review, and the reason is that Kahneman writes extremely well – he’s not easy to summarise, and while he has a distinctive voice, there’s no padding in this book. It is conversational, but it is a scientist’s conversation, and he is as tough on himself and his own mistakes as others.
There’s lots of it I longed to disagree with, but the evidence is against me, and he not only anticipates the objections, he antagonises you into making them. Take this opening paragraph
“Most of us view the world as more benign that it really is, our own attributes as more favourable than they truly are, and the goals we adopt as more achievable that they are likely to be. We also tend to exaggerate our ability to forecast the future, which fosters optimistic overconfidence.”
Of course we may agree or disagree with this, but that’s not Kahneman’s point. As he puts it “Because optimistic bias can be both a blessing and a risk, you should be both happy and wary if you are temperamentally optimistic.” And he then goes on to illustrate why….
Thinking Fast and Slow is justifiably a bestseller, and though I’ve seen it on lots of friend’s bookshelves, and they’ve all admitted they didn’t finish it, just reading the early chapters on how it’s useful to think of your mind as having two systems – one intuitive and automatic, the second effortful and the result of concentration, it is worth the purchase price.
Since finishing the book I have found myself picking it up again to remind myself of various points it makes in its 38 chapters. Perhaps I’m looking for reassurance, since each time I make a decision, I’m now checking through all the obvious mistakes or fallacies I might have fallen for. If so, this book is a strange place to look for reassurance, but as a guide to the mistakes we too often make, it’s hard to beat.
Tom Otley
About halfway through last year I realised that pretty much every other management book I was reviewing for this website quoted Daniel Kahneman. He’s an impressive man – a decorated academic (click here for the full biography) and has won the Nobel prize for economics.
Kahneman says in the introduction that his hopes for the book were “to enrich the vocabulary that people use when they talk about the judgments and choices of others, the company’s new policies, or a colleague’s investment decisions.”
His method in this dense but at the same time surprisingly easy-to-read book is to address different aspects of our biases and judgements in short chapters, typically 10-20 pages, with each chapter then ending with a summary applying it to everyday situations.
The cumulative effect of this is to cause the reader to seriously question a lot of what he or she has taken for granted when it comes to making decisions or assumptions about life. In the chapter: The Illusion of Understanding, for instance, Kahneman says that “the core of the illusion is that we believe we understand the past, which implies that the future should also be knowable, but in fact we understand the past less than we believe we do.”
In part this comes from what he calls “hindsight bias”. It’s when we look back at an event and believe we saw it coming before it happened - it’s how everyone feels about the financial crisis now, or the OJ Simpson trial. In the case of 9-11 “we are especially ready to believe that the officials who failed to anticipate it were negligent or blind.”
The reason for this is that “the mind that makes up narratives about the past is a sense-making organ. When an unpredicted event occurs, we immediately adjust our view of the world to accommodate the surprise.”
The implications of this are various, and most of them aren’t good. We are “prone to blame decision makers for good decisions that worked out badly and to give them too little credit for successful moves that appear obvious only after the fact” (He calls this Outcome bias).
The result is that “decision-makers who expect to have their decisions scrutinised with hindsight are driven to bureaucratic solutions – and to an extreme reluctance to take risks.” At the other end hindsight and outcome bias “bring undeserved rewards to irresponsible risk seekers, such as a general or an entrepreneur who took a crazy gamble and won.”
This feeds through to stories about business, and the leaders we look up to because they have been successful, reading about them to try and learn the methods they used, but Kahneman says that becomes
“…a simple message of triumph and failure that identifies clear causes and ignores the determinative power of luck and the inevitability of regression.”
[There’s another brilliant chapter on regression to the mean]
“These stories induce and maintain an illusion of understanding, imparting lessons of little enduring value to readers who are all too eager to believe them.”
There are a lot of quotes in this review, and the reason is that Kahneman writes extremely well – he’s not easy to summarise, and while he has a distinctive voice, there’s no padding in this book. It is conversational, but it is a scientist’s conversation, and he is as tough on himself and his own mistakes as others.
There’s lots of it I longed to disagree with, but the evidence is against me, and he not only anticipates the objections, he antagonises you into making them. Take this opening paragraph
“Most of us view the world as more benign that it really is, our own attributes as more favourable than they truly are, and the goals we adopt as more achievable that they are likely to be. We also tend to exaggerate our ability to forecast the future, which fosters optimistic overconfidence.”
Of course we may agree or disagree with this, but that’s not Kahneman’s point. As he puts it “Because optimistic bias can be both a blessing and a risk, you should be both happy and wary if you are temperamentally optimistic.” And he then goes on to illustrate why….
Thinking Fast and Slow is justifiably a bestseller, and though I’ve seen it on lots of friend’s bookshelves, and they’ve all admitted they didn’t finish it, just reading the early chapters on how it’s useful to think of your mind as having two systems – one intuitive and automatic, the second effortful and the result of concentration, it is worth the purchase price.
Since finishing the book I have found myself picking it up again to remind myself of various points it makes in its 38 chapters. Perhaps I’m looking for reassurance, since each time I make a decision, I’m now checking through all the obvious mistakes or fallacies I might have fallen for. If so, this book is a strange place to look for reassurance, but as a guide to the mistakes we too often make, it’s hard to beat.
Tom Otley
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