In this book, the author Kahneman shares with us his essential philosophical insights which propelled him to a Nobel Prize. He describes the foundation in neuroscience and psychology which changed his view of how we ascertain something’s value to us. This changed the way that many economists see how the public chooses one choice over another.
Traditional economic theory places a dollar value on an economic choice. So for instance, would you rather have $45 100% of the time or $100 50% of the time? Traditional economics places the “rational” choice as the choice for $100.
Kahneman’s basic innovation is from the field of cognitive psychology. He says that many people would choose the $45 because the human brain is loss-averse. Further, he extrapolates that it all depends on what reference point one has in relation to the choice. For example, someone in poverty might take the choice for $45 because they want a sure thing in reference to their position of need. Someone well off might be able to take more of a risk because of their position of ability to take on risk.
Further, this book delineates why this is so due to psychology and neuroscience. He describes two ways in which we think. System 1 is used when the brain deals with things intuitively and more efficiently. System 2 is used when the brain has to concentrate on facts; it is inefficient but more careful. These two systems are engaged at different points in different people because of their experiences. Figuring out how humans act – the field of human behavior – can only help us predict how humans make economic choices.
In applying the outcomes of these insights to fields as diverse as politics, economics, psychology, philosophy, and statistics, Kahneman shows why he won a Nobel Prize. He reworked the way we think about a lot of things, and that is what makes this book so interesting to read. Each chapter seems to contain its own area of learning and re-learning. It’s fun for life-long learners like me to find out something new each day.
Thinking, Fast and Slow
by Daniel Kahneman
Copyright (c) 2011
ISBN13 9780374275631
Audiobook
Genre: Economics
www.amazon.com