Good Reads: Thinking, Fast and Slow

Yang Su
Yang Su

Yang Su graduated the Johns Hopkins University Carey Business School in 2016 with a Master of Science in Finance. She currently works at GCL in China focusing on capital markets, specifically for fund management and M&A.

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Daniel Kahneman is a Nobel Prize winner in Economics and a psychologist, emphasizing human rationality and judgment. In Thinking, Fast and Slow, you’ll find answers to questions about your daily life. Why do we usually spend more than we have planned on kitchen refurnishing? Should we buy new tickets if we lose our tickets on the way to the theater? Why do we feel less happy when we lose money than when we win money?

Kahneman introduces two systems to explain how we think. System 1 is fast and unconscious and more affected by our emotions and memories of similar events. System 2 is slow and influenced by rationality and consciously checking facts. He gives a lot of interesting examples and writes in plain language to illustrate important research findings.

Below are 3 of the main points that made an impression on me:

Self-Control: Laziness is built in human nature and happens all the time. We write daily goals in planners to push ourselves to finish the to-do list as planned. In reality, we fail to finish all of them because we think we could leave it for tomorrow; this is not so urgent; or we just don’t want to. The truth is we make plans, but we have limited control over the effort of doing it. Effort is a cost for us. Self-control needs effort and attention. This is determined by human nature.

Planning Fallacy: When planning a trip to Japan, I evaluated the financial cost involved, including hotel, flight, and other expenses I thought I was going to have during the 7-day visit. But, reality showed I spent much more than my budget. Similar things happen all the time during our life. We spend much more than we planned on home decoration. We fail to make predictions because we are too optimistic. This is called planning fallacy. The best way to avoid planning fallacy is to make plans based on realistic statistics.

Regret: What’s your regret? Not taking that course; not trying that new dish; or not getting out of our comfort zone? An experiment in New York asked people to write down their regrets on the blackboard and surprisingly, we share something in common, which is  the “not” doing something. Then, people were asked to wipe clean what they’ve written from the blackboard, and they felt better. This is what Kahneman suggests: do not put too much weight on your regret and it will hurt less. Another way to feel better is to minimize the expectations of regret. It’s just that simple.

Nevertheless, Thinking, Fast and Slow is a valuable and mindful book explaining how humans think and helps us assess ourselves.

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