In Thinking Fast & Slow, (which is a highly recommended book on how humans make decisions) Daniel Kahnemann, a professor of behavioral economics at Stanford, brings much of his life’s work to the layman. As a layman, a couple of my “take-aways” are:
Fast, System 1-thinking is really efficient. Burns no glycogen. Usually doesn’t get you killed.
Slow, System 2-thinking takes willpower. Uses up energy similar to a muscle, and thus is commonly avoided. If this was our only decision making strategy we would get eaten by predators before deciding to run.
I first learned about heuristics when reading Thinking Fast & Slow. Heuristics are simple, efficient, “fast thinking” patterns which people often use to form judgments and make decisions. They are mental shortcuts that usually involve focusing on one aspect of a complex problem and ignoring others. For example, “buy low – sell high.” These “rules” work well under most circumstances, but they can lead to systematic deviations from logic, probability, or rational choice theory. The resulting errors are called “cognitive biases” and many different types have been documented. Heuristics usually govern automatic, intuitive judgments but can also be used as deliberate mental strategies when working from limited information.
One of the heuristics identified by behavioral economists is the Scarcity Heuristic. I wrote about the scarcity heuristic in an earlier post and mention it again as a reminder for our journey ahead. Thanks for reading my blog. Stick with me, as I am confident it will be worth the time.