Two fascinating books on decision making
I have recently been thinking about how decisions are made, and thought it would be worth sharing some of what I have learnt from two books – Thinking Fast and Slow by Daniel Kahneman (2011) and The Undoing Project by Michael Lewis (2017)
Reading Thinking Fast and Slow by Daniel Kahneman will challenge your understanding of decision making. It is not an easy read – 500 pages of small print and dense text – but perseverance is worth it and after the first chapter or two you should get hooked by the revelations about how bad our brains can be when we make decisions. But it may be easier to start with Michael Lewis’ latest book.
Michael Lewis, the author of The Big Short, Flash Boys and other books about the financial system, describes the work, background and the personal relationship of Kahneman and his late colleague and friend Amos Tversky. They were both Jewish children in WW2 and fought for Israel in Middle Eastern wars of the 1950s, 60s and 70s. They were also brilliant psychologists who early in their careers developed better ways for the Israeli military to select and train their forces. Later their work on Prospect Theory which amongst other things shows that people value gains less than equal losses led to a Nobel Prize in economics.
Lewis reveals their story about how these two very different people, one charismatic and outgoing the other quiet and withdrawn, worked together to give new insights into how we act and how we make decisions. They showed that people do not think statistically, wrongly find causality in unrelated events, are prone to over confidence and make poor decisions based on information readily available rather than looking for sufficient evidence. They showed that, contrary to economic wisdom, people do not always behave rationally and they can be credited with the development of the discipline of Behavioural Economics.
Lewis reveals enough of their academic insights to make you want to find out more. Kahneman’s book gives the rest. He talks about their work which he links to other people’s research on the same issues so providing a clear summary of the state of knowledge in 2011. The book is likely to make you question what you thought you knew and make you wish you knew what you have just learned when you were younger.
Written by Paul Moxey, SAMI Fellow.
The views expressed are those of the author and not necessarily of SAMI Consulting.
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