THINKING FAST AND SLOW

TAMING INTUITIVE PREDICTION

THE ILLUSION OF UNDERSTANDING
THE ILLUSION OF VALIDITY
INTUITION V/S FORMULAS
EXPERT INTUITION: WHEN CAN WE
TRUST IT?
 TAMING INTUITIVE PREDICTION
Every one of us Forecast
Regressive and Non-regressive

Julie is currently a senior in a state university. She read fluently when

she was four years old. What is her grade point average (GPA)?
Target of the prediction (her
Evidence (Julies reading) GPA)
The evidence is evaluated in relation to a relevant norm

Gymnast

Car
Runner
racer

Tennis
player
 A Correction for
Intuitive
Predictions

GPA = shared factors + factors

specific to GPA = 100%
 IS INTUITIVE PREDICTION ALWAYS WRONG/BAD?

Authors Israeli Defense Forces experience

interviews and
Forecasted
field tests
grades
grades
 OVERCONFIDENCE
THE ILLUSION OF UNDERSTANDING
The Google experience and you think you know it all
People knew 2008 financial crisis!!!
In fact we understand the past less than we believe we do which is the
root cause of illusion.
Recipes for success

System 1 makes us see the world as more tidy, simple,

predictable, and coherent than it really is
Judge the same person based on situations
 THE ILLUSION OF VALIDITY
Leaderless group challenge
 The illusion of stock-picking skill

Why do investors, both amateur and professional, The illusions of validity and skill are supported by a
stubbornly believe that they can do better powerful professional culture
than the market, contrary to an economic theory that
most of them accept, and contrary to what
they could learn from a dispassionate evaluation of their
personal experience?
 The illusion of Pundits
Those who know more forecast very slightly
better than those who know less

But those with the most knowledge are often

less reliable. The reason is that the person
who acquires more knowledge develops an
enhanced illusion of her skill and becomes
unrealistically overconfident

They fail to accept the failure

The main point of this chapter is not that people who attempt to
predict the future make many errors; that goes without saying.
The first lesson is that errors of prediction are inevitable because
the world is unpredictable. The second is that high subjective
confidence is not to be trusted as an indicator of accuracy
 INTUITIONS VS FORMULAS
External factors can influence your intuitions but not defined
formulae
To maximize predictive accuracy, final decisions should be left to
formulas, especially in low-validity environments
 Apgar test
Heart rate, respiration, reflex, muscle tone, and color
Saved thousands of infants lives

8 or above 4 or below