Monkeys Throwing Feces Are Smarter Than You!

thinking-fast-and-slow-cover

Review of “Thinking Fast and Slow” by Daniel Kahneman
Published by Farrar, Straus and Giroux
©2011, first paperback edition @2013

Reviewed by Steve O’Keefe

This is a difficult book, requiring much System 2 cognitive effort; if you want to substitute a simpler read, try the Introduction and Part V: Two Selves, and skip all the hypothetical gambles between.

The Introduction has been labored over and nicely hits all the high notes — it’s worthy of the Nobel Prize, which the author was awarded in 2002. Daniel Kahneman and his partner Amos Tversky came at economics from psychology and basically said the Rational Man has no clothes. People often act against their own interests and are easily duped. This may seem self-evident after the U.S. Treasury covered Wall Street’s losing real estate bets in 2008.

Daniel Kahneman

Daniel Kahneman

Human beings tell themselves a story about what is happening in the world and often ignore information that cannot be easily worked into the plot. For example, peak marital happiness is in the first year of marriage, then it steadily declines. Married couples prefer not to let this fact inside their story lines. Here’s another interesting Kahnefact: Mothers prefer spending time doing housework to spending time with their children. Ouch.

A rational “Econ” weighs the facts and makes the best choice. A “Human,” says Kahneman, makes a quick, emotional choice then shapes the facts to support the decision. The rational mind resists this assault, but in chapter after chapter, Kahneman shows that decisions we think are based on “science” are mythology.

He goes after stock pickers — you can thank Kahneman and his proof that managed funds cannot outperform the market by enough to cover their fees for the rise of giant index funds. He goes after surgeons, and rightly so: The majority of them will change their recommended treatment for cancer from surgery to radiation depending on how you ask the question.

Kahneman disturbingly points out that a good algorithm is often better at decision-making than a trained human, yet we almost always prefer the human to the formula. That’s not “rational.”

Kahneman goes after CEOs, who he criticizes for their overconfidence, their appetite for risk, their reluctance to cut their losses, and their tendency to “swing for the fences” rather than admit defeat and reposition their assets. Kahneman is a psychologist; he never once mentions the limited liability all U.S. corporations enjoy absolutely encourages risky, swing for the fences behavior because there is only upside. If it all goes badly, the taxpayers will eat the loss.

Amos Tversky

Amos Tversky

Kahneman’s weakness in economics is ironically the only weakness in the book. How can you have a discussion of utility theory and not mention John Stuart Mill and barely acknowledge Jeremy Bentham? Part IV — Choices — should be called Painful Choices, because it is painful to watch Kahneman build up to prospect theory when he could have used just two words: marginal utility.

At one point, he seems to not understand risk, as when he accuses fellow Nobel laureate Gary Becker of believing there are no such things as mistakes. A mistake, in economics, is the downside of risk. It’s supposed to happen all the time in a free economy.

As for the title of this review, it’s become an old saw that monkeys throwing darts at a stock chart are as likely to come out ahead as human stock pickers. “Monkeys throwing darts” is a pseudonym for randomness. But expertise is something that comes through experience, according to Kahneman, and monkeys are experienced at throwing feces.

Therefore, their accuracy with feces should be superior to their accuracy with darts and, thus, superior to you. Work that into your story line.

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