Daniel Kahneman: Algorithms Make Better Decisions Than You

0:00 Delay your intuition. Don't try to form an intuition quickly, which was what we normally do. Focus on the separate points. And then when you have the whole profile. Then you can have an intuition and it's going to be better.

0:20 Welcome to the Knowledge Project. I'm your host, Shane Parrish. In a world where knowledge is power, this podcast is your toolkit for mastering the best of what other people have already figured out. So you can use their insights. In your life. Before we get into the interview, I want to tell you about a moment that didn't make it into the episode.

0:43 I first came across Daniel Comman's work in the early two thousands. His impact on me and so many people around the globe has been unbelievable. By the time I sat down with him in his New York City home in twenty nineteen, I had so many questions for him. Conan won a Nobel Prize in economic sciences in 2002, yet he never took an economics course. His central message was very simple. If we want to make better decisions, we need help. Danny died last year on March twenty seventh, twenty twenty four. He was ninety.

1:14 This conversation is now one of the final opportunities to hear directly from one of the most influential thinkers of our time. I get messages about this episode every week. People come away with new insights on everything from life. to decision making. I re listened to it recently and it's timeless. That's exactly why I'm republishing it.

1:36 Consider loss aversion, one of his most important discoveries. Why does losing a hundred dollars hurt twice as much as gaining a hundred dollars feels good? The asymmetry affects everything. It affects your stock portfolio, your golf game. Check your portfolio when it's down, and you'll start making emotional decisions. A golfer putt's better for Perr than for Birdie. But here's what happened near the end of our interview. Danny's phone rang, and it was loud. He'd forget to turn it off. And we're almost done the interview at this point, but he answered. And someone obviously wanted him to give a talk or review a book. He ended the call with words that have stayed with me since then. My rule is I never say yes on the phone. I'll get back to you tomorrow.

2:18 I wanted to discuss that on air, but we ran out of time. As I packed up my gear, I asked him about that. This rule was a trick to avoid saying yes intuitively. It gave him time to think. He's always bombarded with requests. And he often says yes when he didn't want to. At first he would try saying no, that date doesn't work, that timeline doesn't work, but what happened in those moments was it turned into a negotiation. What about another date, another timeline? So he hit on this rule. And to me, this is his most practical discovery. Most people don't even know about it. This rule lets you reprogram your unconscious mind. Your desired behavior becomes your default behavior. And that's incredibly powerful.

3:02 It changed my life. I now exercise every day. It's actually easier than three times a week. The activity duration and scope can change, but working out and exercising doesn't. I think I've missed five days in five years at this point. And I talk about this in my book, Clear Thinking, and the concept has changed so many lives, including my great friend Brent Bishore, in episode one ninety-six. We talk about this a little. Several parts of this conversation stuck out when I was re-listening to it. First We talk about happiness versus satisfaction. Happiness is feelings. It's mostly social. Am I with the people who love me and whom I love back? Satisfaction, on the other hand, is how you feel about your life, your job, your career.

3:44 Conventional aspects. Danny argued people want satisfaction more than happiness. Second, changing behavior. Make good behavior easier and bad behavior harder. The insight, all behavior is equilibrium. Rather than pushing people to change, ask why they aren't doing it already. Third, behavior is situational.

4:06 Want to understand behavior, look at the situation. When someone acts in ways that don't make sense, ask yourself. What would the world have to look like for that behavior to make sense? Fourth. Agents making decisions on your behalf Beat you at certain types of decisions. They have no sunk cost. They have no emotions. Brian Johnson talks about this in episode 188.

4:29 He turned his health decisions over to effectively an algorithm. Because that algorithm makes better decisions than he does. Fifth, our beliefs are formed by people more than facts. We agree with people we like despite the facts.

4:46 It's easier to believe a lie from someone you like than a truth from someone you dislike. We form identity beliefs, liberal, conservative, democrat, republican, they can do no wrong. If they're wrong, we're wrong, and we can't handle that. Finally intuition. Danny had talked about this so much, his answers repetitive. So I framed my question on this to include his typical answer in the question, forcing him to think a little deeper. Whether this is your first listen or your third, you'll come away with ideas that you can use in life.

5:38 Dale, so happy to get a chance to talk to you. Well I'm happy to have you here. What was your childhood like? What were you like as a child? Oh my God. That was a long time ago.

5:51 I was I wasn't known they trial. Uh as you might expect, I suppose. I was I thought I'd be a professor.

5:59 When I was like three or four years old because People told me it would be because I probably spoke the long words. And stuff like that. So And then the rest of my childhood, I mean.

6:13 I was five when World War Two began. So and I was a Jew in France, so I've had a difficult childhood. But From that point on. But I was

6:25 Was I like yeah, I was a I was a nerdy child. I was uh quite inept physically. Very fortunately for me when I finally moved to Israel at age twelve. They held me up a grade and then And that was all right.

6:40 But That's What I was like. Are there any particular lessons or memories that stand out for you? There are two of them that I speak about, so One is that I was

6:52 I was a psychologist very early on. That was Was very clear I I wrote an essay Um before I was eleven.

7:01 Remember where because It was it was a German counterattack. It was during that period we were in Paris. Um I wrote an essay about

7:12 Faith and religion. And it was a very pompous thing. I had a little book that was that was titled What it. What I write about what I think something

7:24 Pump like that. But the S uh started with another pompous thing. That I quote Pascal My my sister had passed through.

7:35 Exams and I had reads. No shields. Studied from Pascal and I had read it. And Pascal had said that Faith.

7:45 Is God Made Sensible. to the heart. And you know, little me, I said How true?

7:54 That's not my And then but then I said, but faith is really hard to get. You don't say Scott all the time. So that's what

8:05 religious pompus for. Cathedrals, organ music. They give you and I call that Uzat face. Sort of substitute faith. It's a similar feeling. It's got to do with God.

8:20 And that's what you What do it? That's that's a psychologist. So it it's clear. That's you know, that was my calling. And so that's

8:32 One significant memory of my childhood. So you wanted to be a psychologist. I think so. I think so. I mean uh you know It's

8:42 Always had that Point of view that uh Later as a teenager I was, you know, interested in all the philosophical issues like, you know, does God exist and what's good and bad and stuff like that. And Why shouldn't we must debate you know serious questions.

8:59 Um but But I discovered that Actually. I was less interested in the question of whether or not God exists. Then why do people believe that he exists?

9:11 That I thought was interesting. And I wasn't particularly interested in the question of what's good or bad, but I was really interested in what makes people angry. And indignant. So

9:22 And I've had the psychological point of view since Turns out since my childhood. Was there anybody that sort of influenced you to Go on to study this? I mean, it's one thing to have these dreams as like a twelve, thirteen, fourteen year old boy. It's another to turn this into, you know, probably

9:40 The most eminent career that's ever happened for a psychologist. No, I'm not the most so and I'm curious. You know, and I wasn't sure actually that I would do psychology and uh When I took a vocational exam. Two.

9:55 Telling me what I was good at. Um Psychology and economics turned out, but you know, that was unexpected. I was And then I took psychology as an undergraduate. And methods.

10:07 At which I was not particularly good, so And no, it's not that I knew at the time that you know I had that calling to be a psychologist. I thought You know, I I thought I'd be a professor in one thing or another. I mean that's I thought I'd be an academic. But

10:24 Not psychology specifically. You worked for a l uh with uh Amos Tversky for a long time. Are there any particular stories that you remember about working with him that bring a smile to your face? Yeah. Almost everything about working with him. Brings a smile to my face.

10:41 Yeah, he was a Very unusual person. Most people who knew him thought that he was the smartest person that ever met.

10:51 And in fact Famously called this Nick Niz, but said that it's sort of an intelligence test when you said that when you were with them was How long does it take you? to figure out that he's smarter than you are and

11:04 The faster you figure that out, the smarter you are. So yeah, he was Uh he was super bright. And very, very funny. He joked a lot, he laughed a lot at his own jokes.

11:16 And that was infectious. When I was with him, I was very funny too. More than half of my the laugh of my laugh. With my lifetime of arguing. The ten years though.

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12:25 Slash knowledge project. That's mintmobile dot com slash knowledge project. Upfront payment of forty five dollars required, equivalent to fifteen dollars a month, limited time new customer offer for first three months only. Speeds may vary about thirty five gigabytes on unlimited plan, taxes and fees extra. See Mint Mobile for detail. You have an interesting distinction between happiness and satisfaction. Can you walk us through that? Yeah, sure. I mean.

12:52 The wood Happiness is so ambiguous and it means so many things to many people. But one Sensible interpretation of it. is that it's got to do with your emotions, with how you feel.

13:06 with the emotional job of your life. Whether it's a happy life. You know, the It's pleasant to be you. Life satisfaction is a completely different thing. I mean, satisfaction.

13:17 Is uh how you feel about your life when you think about your life. Um Most of the time we don't think about your life, you just live. But you know, sometimes So.

13:27 Look and that's That's when you How satisfied you are. That's thy satisfaction. It's not satisfaction. Should we balance the two, or how would you think about them? Should we be more happy when we're younger, more satisfied when we're older?

13:45 That thought that never occurred to me. When I began to work on those. So it's starting out. Thinking that Happiness.

13:54 In that sense of how you feel. When you live. But that was reality and that Life satisfaction was just stories that people tell themselves and the the important thing was to be happy in real time.

14:09 But later when we did more research. It turned out that the circumstances that make people happy. And the circumstances that make them satisfied with their life. I'm not the same.

14:21 So Happiness is mostly social. It's you know, it's being with people you love. I'll love you back. That's That's a lot of what happiness is.

14:31 Life for this faction is Much more conventional is to be successful. Um, you know, so it's money, education. Prestige. That sort of thing.

14:42 is what satisfaction is about. So those are two very different things. I thought that life satisfaction is irrelevant. You know, that's how I began. And we we had a research programme where we were We were trying to you know to show that this is the case. But then

14:59 After a few years I realised That that people really want. In their life. Yeah.

15:07 They don't seem to care about how happy they'll be. They seem to want to be satisfied with their life. They seem to want to have a good story about their life. And then I was in the position of saying that to define well being in a way that people don't seem to care particularly about. So That was not a tenable position, so I

15:27 I drop back into saying that I had no idea. How to deal with it. W was this the results of the research? You did some research that was I think it said above seventy thousand, you don't become happier, but you become more satisfied. No. The research I did with Angus Deaton.

15:45 Prince. famous economists. We showed That In terms of happiness, in terms of

15:53 emotional tone, positive than negative. Having a lot of money doesn't make you happier. But being poor makes you miserable. So And that's

16:04 above a threshold that was like seventy thousand dollars approximately in the US. Then Extra money didn't make you emotionally happier. But

16:14 With life for the faction was a different story. It's less of destruction that doesn't satiate so the It's always good to have more. Uh because basically I think. Money is a proxy for success.

16:27 And Approxy for subjective success. In many cases. So it's not necessarily about spending it or doing something, but it's just a measure. Just getting it. I mean, you know.

16:38 You look at all those people, all those billionaires working their heads off. And they are not doing this because they need more money. They're trying to get more money. And they're trying to get more money because that would be an indication that they're good at what they do. I think mostly it's a brooksly.

16:54 Do either of those variables correlate to longer living? Happiness or satisfaction. Both apparently. But you know, it's it's hard to separate. Yeah.

17:04 I haven't been followed. And I'll show it to you after this deciding that the I didn't know what well being was. I sort of stop doing research on this, so it hasn't been following. But I think

17:18 There's clear evidence that being effectively happy, you know, is very good for you. And you do live a bit longer and You made better and so. And life satisfaction works in the same direction. Whether

17:31 It's separable which of them You know, isn't more important that I don't. Well let's switch gears a little bit and talk about behavior. And I'd love your insight or ex expansion upon the idea of we can change behavior and how do we go about it.

17:48 Changing our behavior. Well, you know, I'm not sure by the premise. Thank you Changing behavior is extremely difficult. Yeah.

17:57 There are a few tips on you know. few guidelines about how to do that. But Anybody who is very optimistic about changing behavior is just looted. It's it's hard to change other people's behavior. It's very hard to change your own. Maps and cool.

18:12 This is what marriage is all about, right? Among other things, you know people When when Yeah, married people are trying to Change each other's behavior. They're not on their way to a good marriage, I think. We'd all be happier with lower expectations. I mean and and even if you have expectation, don't try to change.

18:33 Because it's very unlikely to work, then And then it's definitely. I can think of the common ways that we would sort of go about behavior change and it would be uh, you know, making good behaviors more easy or negative behaviors harder. Then that's the main The men in thought.

18:53 You know, when you want to influence somebody's behavior That's a very big insight. I've always thought that this is the best psychological idea. Ever. No, so far as I'm concerned.

19:03 But It's that When you want somebody to move from A to B in terms of their behavior. You can think of it.

19:11 But there are two ways of doing it. You can push them. Or you can ask the question, why aren't they Doing be already. Which is an unusual question, but you know, why

19:23 So then when you ask why Why not? Why aren't they doing B they ought to. I think they ought to. Then You get a list of what

19:34 That's the psychologist who My guru and thus, my hero and many people's hero. He spoke of restraining forces. I mean so there are reasons why they're not where you want them to be.

19:48 So he spoke of Behavior as an equilibrium. The forces that are pushing you one way So How loud you speak?

19:59 How fast you drive. It's easy to think of it as as an equilibrium. And What we tend to do When we want to move people from A to B As we push them.

20:11 We add to the driving forces. And Kutluin's insight. was that this is not what you should do. You should actually work on the restraining forces. And try to make them.

20:23 Weaker. Um That's a beautiful point. And he showed Yeah, that image that you know I've had. Since I was an undergraduate.

20:32 And I'm not sure actually whether it was his image. Something that I drew from reading him, but It's like you have a plank and it's being held. By two sets of springs. You know, you wanted to move one direction.

20:46 And so you could add another spring that would push it that way, or you could remove one of the springs that are Holding it back. And the interesting thing And that's the striking outcome. Yes.

20:59 When it Ooh. If it moves because of the driving force, you've added to the driving force Then at equilibrium It will be in a higher state of tension.

21:10 Than it was originally. That is because you've compressed when spring and such pushing back harder. But if you remove a restraining force. At equilibrium. There'll be less tension in the system. Must have been twenty years old. I thought that's just so beautiful.

21:26 What do you wish that everybody new about psychology that you don't think that they do. If that was class one, what's class two? You know, plus two. Which is

21:37 The development from class one, you know, it's It's the same idea extended. Plus two is that Behaviors. don't necessarily reflect

21:48 the personality, but behaviors have a lot to do with the situation. And so if people behave in strange ways. Look at the situation they're in. And what are the pressures in the situation that make them The sweep.

22:02 So There is a bias that the social psychologist well known social psychologists call the fundamental attribution error. And that means that when you see People acting in some way. You think that it's because of their personality that they do it. That may not be the case.

22:19 It's Quite likely that the situation is making them do it. I'd like people to No that Motivation is complex.

22:28 And that people do good things for a mixture of good and bad reasons, and they do bad things for a mixture of good and bad reasons. And I I think that There is a point. to educating people in psychology is to make them less judgmental. Yourself. W more empathy and more patience.

22:47 And being judgmental doesn't get you anywhere. When when you talk about situational, one of the things that comes to mind is it's so easy for us to give our friends advice. But if we were in that situation we might not necessarily see it. Wha why is that the case? Why is it so much easier to give other people advice? I mean feelings get in the way of key thinking. There is a phenomenon that that we call the endowment effect.

23:12 Which is that when I've asked for more money to sell you my sandwich than I'd Way to get it. I mean that's essentially. The endowment effect. And Our explanation of it. There are many explanations, but

23:24 A story I like to tell about it is that it's more painful to give something up than to get something. But there is an interesting result that if you have an agent Making Decisions. On somebody's behalf.

23:38 That agent doesn't have loss of motion. So that agent sells and buys at the same price, which are the economically rational thing to do. Well this goes into policy and government some really important things. The governments are like agents or people groups. Who think about the good of society and agents.

23:56 They take the economic view. They take the view of what things would be like at the end. They don't figure out that there are some people who are going to be losing because of the reform that they make And it turns out that You can really expect losers, potential losers, to fight a lot harder. And potential winners.

24:15 And That's the reason that reform so frequently fail. And that when they succeed they're Almost always way more expensive. And anticipated and they're more expensive because you have to compensate the losers.

24:29 And and that frequently is not anticipated. So That's that incorporates behavior change.

24:39 And And the difference between Perspective. Between things You know, in the situation feeling the pain of giving up

24:48 Sandwich. And not feeling the pain of giving up the symptoms. They would have huge public policy sort of implications too, right? That we don't tend to think about or discuss. That's a really interesting angle there. I'm going to come back to sort of situational decision making based on

25:05 sort of like what we see is all there is and we have these feelings that we can't sort of disassociate with. How does environment play a role, like the physical environment? in sort of what we decide or does it Uh I mean, you know, there are s sort of obvious thing that we know.

25:23 People are are hot and bothered and distracted and And there is a lot of noise and so on than they'll think as well. That we know. That's But even there there are puzzles. I mean many people Think and work a lot better in cafes. You know, where there is

25:41 naturally ambient noise and activity around them. And it helps them concentrate better. So This is a very simple story of Uh the environment. But certainly you can make the environment tough enough so that people won't be able to think properly.

25:56 That's That's feasible. Other things that we could do to I guess push. The environment to

26:03 be more conducive to clearer thinking? The physical environment in this case. Oh. Yeah, all sorts of you know. Odd find the engine or the color of the colour of the room, the Some colours are better than others.

26:19 And you would expect that some colours are more calming than others. So you wouldn't want to be in a in a red room. Making decisions. Making decisions. But you know those uh Extreme and minor effects.

26:33 Uh I wanna come to intuition and noise later. Is there anything else that stands out that gets in the way of clear thinking that we can sort of bring to the surface now. Well. You know what?

26:46 What gets in the way of fear thinking that we have We have intuitive views of almost everything, so As soon as you present the program to me, I'll You know? That's some ready made answer.

26:58 And but that's in the world of clear thinking of those ready made answers. And we can't help but have them. So that's one thing that gets in the way. Emotions get in the way. I I would say that independent clear thinking

27:13 Is To first approximation impossible? I mean in the sense that You know, we believe in things most of the time, not because we have good reasons to believe them. If you ask me for reasons, I'll explain you.

27:28 Yeah. I'll always find a reason, but the reasons are not the causes of our beliefs. We had belief. Mostly we believe in some people and we trust them. And we adopt their beliefs.

27:41 So uh we don't Retra beliefs by clear thinking. Some you know, unless you're Scientists doing something like that. That's very narrow and there is a fair amount of emotion neuroscientists as well that gets in the way of key thinking.

28:00 You know, commitments to your previous views. being insulted that somebody thinks he's smarter than you are. I mean, lots of things get in the way even when you're a scientist. So I'd say there is less clear thinking. And people like to think.

28:14 Yeah. Is there anything that we can do at the belief formation stage? Like it sounds almost as though when you say that we're reading a newspaper. We read this op ed and it's well constructed and fits with our view of the world. Therefore we adopt that opinion.

28:34 And we forget the context that we didn't learn it through our own experience or reflection. We learned it sort of from somebody else, so we don't know when it it's sort of likely to work or not work. But we just proffer that as our opinion is there. That's how I believe in climate change. I believe in the people who tell me there is climate change.

28:55 And the people who don't believe in climate change, they believe in other people. So But similarly, there's like fake news and all this other stuff that we we would have the same reaction to. But I'm much more likely to believe fake news on my side. Then

29:11 The fake news on on the other side. I mean it's through. That there is a A huge degradation and in public discourse and

29:21 In the recent ten, fifteen years in the United States. I mean There used to be an idea that facts matter. What would be your hypothesis as to why that that is playing it. Like why is that?

29:36 Well, I mean it's not just It's all to answer that question without Without politics because It's a German po Political polarization.

29:46 That's cloud. A very big effect. And the fact that people can choose the sources of information. Let's switch gears a little bit and talk about

29:58 Intuition. I think one of the The things that strikes me the most about Some of the work that you've done is the

30:09 Cases where we're likely to trust our intuition and when we're not. And so if I'm correct me if I I'm getting this wrong, so it's sort of like a stable environment. Repeated. Attempts. And rapid feedback.

30:22 It strikes me that Mm. most decisions made in organizations do not environment.

30:31 Uh and yet we're making a lot of these decisions on judgment or experience. What are the ways that we can sort of make better decisions with that uh in the context. Well in the first place I think you know you You shouldn't expect too much.

30:48 Think through yeah should have low expectations. About improving the systems. I mean there is yeah, one basic rule is slow down. Especially if you If you have that

31:01 Immediate conviction. Slow down. There are procedures, you know, there are ways of reaching better better decisions, but uh reaching better judgments and we can talk about them. I would love to. If you really want to improve the quality of decision making.

31:18 Use algorithms. I mean whenever wherever you care. Uh if you can replace judgments by By rules and algorithms. They'll do better. The Big social costs.

31:31 Two. Trust thee. Allow an algorithm to make decisions. But But the decisions were likely to be better. So that's one thing. If you can't use algorithms Then you slow yourself down.

31:43 And then There are things that you can do. for certain types of problems. And the different types of problems. So

31:50 One class of problems. uh forecasting problems. A friend filled Tedlock, you know, has that book on Super forecasters. Where?

32:01 He identifies with people who are good at Focus thing. The future. What they do that makes them good. Uh and I trust to train people and we can improve people.

32:11 So that's one class of problem. I'm interested specifically In another kind of problem judgment problems. Well basically

32:21 You're considering options or you're evaluating the situation. And you're trying to Give it a score. There there there is advice I think on how to do it. For me, it goes back to Something.

32:35 I did. And the Israeli army when I was like twenty two years old. So That's a long time ago, like sixty years ago. I was a psychologist in this really on And I was fine.

32:48 The job of Setting up an interviewing system for For the army. That's ridiculous, but you know, this was the beginning of the state of Israel, so People who are improvising all over the place. I had a BA and I was

33:02 I think it were the best dream psychologists in the own. My My boss was a chemist. Brilliant. Anyway. And the the existing system.

33:12 was one where people would into view and try to form an intuitive global image of how well s that recruit would do as a combat soldier. Twist. The objective of the object of the interview. And

33:26 Because I had read a book. Paul Neil. I took a different talk. And the different talk was I identified

33:33 Six traits that they sort of made up. And I Had them. Ask questions and evaluate each of these traits independently. and score it and write down the score, then go on to the next shape.

33:46 And they had to do it for all six traits. That was That's all I asked them to do. And the interviewers Who are about one year younger than I All recruits, but very, very smart, selected.

33:59 For being good at it. They were furious with me. And they were furious with me because They wanted to exercise their intuition. And I still remember that one of them said, You're turning us into robots.

34:12 So I compromised with them. And I said okay, you you do it my way. And I told them, You try to be reliable, not valid, you know. I'm in charge of the literacy you be reliable, which was

34:25 Pretty arrogant, but that's that's Oh present. But then when you're done. Close your eyes. Um

34:33 Just put down the number of how good a soldier is that guy going to be. And when we validate it. The results of the interview. It was a big improvement on what had gone on before. But the other surprise

34:48 Was that The final intuitive judgment It was good. It was as good as the average of the six straight, and not the same. It added information.

35:02 So actually We ended up with a score that was half. was determined by the specific ratings and the intuition got half the way. And And that by the way stayed in the Israeli army for well over fifty years. I don't

35:15 No, whether it's I think it probably some version of it was still being forced but Around Fifteen years ago. I visited my own base and And the commanding

35:26 Officer of the research unit um And then she said uh And then we tell them, Close your eyes. So that

35:37 That had stayed for fifty years. No. But close your eyes and that whole idea. is now the basis of the book that I'm writing. So actually I have Same idea, really. That's when you are making decisions.

35:51 You should think of options as if they were candidates. So you should break. Break it up into dimensions, evaluate each dimension separately, then look at the profile. And And the key is

36:04 Delay your intuition, Don't try to form an intuition quickly, which is w we normally do. Focus on the separate points. And then when you have the whole profile. Then you can have an intuition and it's going to be better.

36:20 'Cause people make form intuitions too quickly. And uh the rapid intuitions are not particularly good. So if you delay intuition until you have more information. It's going to be bad.

36:32 I'm curious how we delay intuition. You delay intuition by focusing Under separate problems. So Our advice is That if you have, you know, uh a board of directors making a decision about the the investment.

36:47 We tell them you do it that way. Take the separate dimensions. Uh really think about each dimension separately and independently. And don't allow You know, I feel that fear don't allow people

37:02 To give the final judgment. Wait. Until We cover the whole thing. I mean if you find a deal breaker, then you stall.

37:11 But if you Haven't found a deer breaker. Way to the end. And look at the profile. And then

37:18 Your decision is almost certainly going to be better. Does does that include weighting the different aspects of the problem differently, or do you highlight that in advance or do you It makes you see the trade offs more clearly. Otherwise. When we don't follow that discipline

37:36 There is a way in which People Form impressions. Very quickly you form an impression. And then you spend most of your time confirming it.

37:46 Instead of collecting evidence. And so If accidentally your impression was in the wrong direction. You're going to confirm it. And you don't give yourself a chance to correct it.

37:58 Independent is the key. Because Otherwise. When you Take those precautions.

38:06 It's Like having a bunch of witnesses. To some crimes. And allowing those witnesses to talk to each other. They're going to be less valuable.

38:16 If you're interested in the truth. Than keeping them rigidly separate. And collecting. What they have to say. What have you seen work?

38:25 In a repeatable way. it maybe a particular organization or cross organizations to Not only reliably surface disconfirming evidence. But then

38:39 Place a value on what is service instead of being dismissive is Is there a framework for that? Is there Well yeah, the many you know the There are many procedures like red team, blue team, devil's advocate, I mean those have been, you know, many attempts.

38:56 In in general. You know, if you're if you're the head of the group that makes decisions. One of your missions would be to Protect the decenters. Because they're very valuable.

39:09 Um It should make it. Painless. To to be said or as painless as possible. Because it's thought to be said.

39:16 It's Painful. And costly. So protecting the centers. Is important.

39:23 I'm curious about the distinction between Intuition and judgment. Y you had mentioned Intuition judgment, intuit judgment. Can can you walk me through some of like how those differ?

39:37 So that's hard to separate. And Judgment is is what you do when you integrate a lot of information informally. into a score of some kind.

39:50 I we speak Uh we being like co authorsuna in the book we're writing uh We speak of judgment as measurements. But it's measurement with the measuring instrument is your mind.

40:02 But you do it informally. And because you do it informally People are going to I'm not necessarily going to agree, so Wherever we say it's a matter for judgment, we're allowing

40:14 For variability. Now judgment can be More or less slow. More or less systematic.

40:23 So at one end you have Pure intuition where you allow the judgment to go very quickly and so on. And at the other end you try to delay intuition, but ultimately if you're making it by judgment, you're going to Have a judgment and it's going to be

40:39 Like an intuition. Mm. You're going to go with it. So The more or less deliberate judgment.

40:46 Intuition is always involved. At one point or another. Yeah, they're sort of like listening to it or fending it off. Yeah. And our recommendation is

40:57 Fin it off. Are there ways to judge the quality of somebody's judgment? Oh sure. I mean, some of them would be unique to the actual scenario, but what are the sort of other ways that we could Well

41:09 Menu. You may require people to explain their judgments and evaluating the quality of the explanation is You know, whether it's logical Whether it uses the evidence, whether it uses all the evidence.

41:24 Whether It is. Strongly influenced by wishes. Whether the conclusion was reached before the judgments.

41:34 Supposedly is made. You know the A lot of them. There are lots of ways for judgment to fail. That can be recognized.

41:42 So it's harder to recognize very good judgment, but it's really easy to see. You know what goes wrong. And there were quite a few ways. And I think some of those ways are the cognitive biases.

41:55 uh like overconfidence and sort of using small or extrapolating from small sample sizes. And one of the interesting things that Um I've heard you say in interviews before, so correct me if I'm I'm off here is that You you've studied cognitive biases effectively your whole life and you're no better at avoiding them.

42:16 than anybody else. Yeah. Certainly. Not much better, no. What hope do the rest of us have?

42:23 Not much. I mean I never Yeah, I I think You know, the quality of people's judgment is affected by by education. But

42:34 So in general, no. More educated people. Make better judgments, I think. On average. But

42:42 People decide I'm going to make better judgments. I don't think that's very hopeful. I'm much more hopeful about organizations. Because organizations Think More slowly.

42:54 And they have procedures for thinking. And so you can control the procedures. Individual judgment is really hard to fix. Not impossible. One of the things that I see people do in response to

43:07 cognitive biases and trying to account for them. is to sort of make a list of them almost like a checklist. and then go through that checklist and explain or rationalize why Those things don't apply in this situation. It also strikes me that the more intelligent you are, the more stories you'd be able to conjure up about why why you're avoiding this.

43:29 I really think that's not very hopeful, because there's so many biases. And the biases work in different directions anyway. So Sometimes You can recognize the situation.

43:43 is one in which Yeah. You're likely to be wrong. in a particular way. So that's like illusions if you

43:51 If you recognize a particular button as something that gives rise to a visual illusion. Then you don't trust your eyes. No, you do something else. And the same thing happens.

44:04 When you recognize this is a situation where uh I'm likely to make an error. So sometimes you can recognize The important for example. A boot with golden anchor.

44:17 So You're going to negotiate a price with somebody. They start very high. And that has an effect. So you know, or you should know.

44:29 Uh the person who moves first. And a negotiation has an advantage. Because it The first number Changes.

44:39 Everybody's view, but it's considered plausible. So it moved things in that direction. That's that's a phenomenon. People Can learn that.

44:49 And they can learn to resist it. So When I was teaching negotiations I would say somebody does that to you. Comes up with a number that's absurd. I would say lose your temper.

45:02 Make a scene. So I will not start the the conversation from that number, it's an absurd number. I don't bother to. Let's erase the number.

45:13 So that's something that Well, you know, you can improve if you recognize it. I think people are aware of the fact that You shouldn't make A decision about

45:23 Road safety. Within a short interval of the terrible accidents. Yeah. So You should allow things to settle down and cool down.

45:33 There is a more subtle error and harder. harder to fix. But that The best prediction, the best guess. is always less extreme than your impression.

45:45 Intuitive prediction is as we say Not regressive. It doesn't recognize regression to the mean. But statistics is statistics. And statistics. Things are less extreme.

45:59 Should I give you a My favorite example of a bias. Yeah, please. Okay. I have been unable to think of a better one. But The story is about Julius.

46:10 That's part of the story, that's her name. She is a graduating senior at University and I'll tell you one fact about her. That she read fluently when she was four? What's the VPA? Um

46:22 And the interesting thing here is that Everybody has a number. As soon as I told you that thing the number came to mind. Now we know where that number came from. We really That's one of the few things that I'm reasonably sure.

46:36 I understand perfectly. And this is that when you hear She read fluently at age four. You get an impression of how smart she is, of how Because she was four.

46:49 And you could put that in percentiles. You know, where did that put her? A percentile for sort of aptitude ability. And it's high. It's not you know, she had read fluently at age two and a half. Would be.

47:02 More extreme, but H four is pretty hot. So say it the ninety eighth percent on. Um And then The GPA that comes to your mind

47:13 is around the ninetietth percentile in the distribution of GPA. So you pick something Your prediction is as extreme as your impression. Mm-hmm. And it's

47:24 Idiotic. Statistically. Completely stupid. Because Clearly.

47:32 The age at which a child learned to read is not all that diagnostic with respect to GPA. So it's better than nothing. If you didn't know anything You would predict The mean GPA would have weight at three point one, three point two.

47:46 No She's bright, so Probably a little bit Higher, but not three point seven. You don't want

47:55 To so that's cool. That's a bias. That's non regressive prediction. Um That's very hard to resist. Sometimes I'm able to resist it.

48:07 But never when it's important. No, when I'm really involved in something. I don't think about it, but sometimes I would have ignorant oh. Yeah. That's a situation. I should moderate my prediction.

48:20 And if you're conscious of it. That's an example of one you can sort of talk yourself out of. Yeah, you can talk yourself into. Oh no You know, you you usually will find a way to cheat. And end up

48:34 With your intuition. Uh it's That's remarkable, you know, and uh when you've been in academic life a long time, so You've been at in many situations where people discuss A job candidate.

48:47 And Absurdities of that kind. A very common. So somebody a job candidate gives a talk. And people evaluate the talk.

48:57 And This is something. happened, you know, and uh at Berkeley when I was teaching there, that somebody had a talk wasn't a very good talk. Stam it a bit. Now that person had

49:10 Teaching prizes. And yet what was said about him in the discussion, he can't teach. You know? We heard the talk. So that's a mistake.

49:21 But the funny thing is you can point out to people that that's a mistake. They still don't want to hire him because he gave a lousy talk. So uh It's hard to resist. It's interesting. One of the I think one of the ways I probably got my job is using psychology in the interview, which is asking why I was there and then reinforcing those beliefs.

49:41 Sure, the energy. I wanna come back just one second to the the immediacy of sort of having a stimulus and then Making a decision. So we use the example of roads. uh and a tragic accident happens and you're rethinking sort of policy or laws around the roads. How much of that do you think is

50:03 Social pressure. And I'm I'm wondering if we could even extrapolate that a little more to we're taught. To answer questions on a test right away, right? So we see this question and we answer it. We're taught that we or maybe it's reinforced. Todd is Probably the wrong word.

50:21 that politicians need to have a response an immediate response to and even if they know the best thing to do is like, okay, like let this settle, take some time. It's society writ large seems to demand it. Like the environment is not conducive. I think It's

50:39 Pretty clear that people prefer leaders More intuitive. And we're overconfident. Uh leaders who Deliberate too much.

50:49 Are viewed with suspicion. No. So I think Obama was at a certain disadvantage. Relative to George Bush.

50:59 Hello. Because you've seen as more deliberate. When you're very deliberate you look as if you don't know what you're doing. But when you Act with confidence.

51:11 So people want leaders who are intuitive, I think, by and large. Provided they with Just working my way back through some of these rabbit holes that we've gone down. You you taught negotiations. I'm curious what would be in your your sort of syllabus for negotiations that everybody should learn about negotiations.

51:32 When it comes to your work and psychology. Well Yeah, the That goes back to a theme that we started with.

51:41 the the essence of teaching negotiations. It that negotiations is not about trying to convince the other guy. It's about trying to understand them. So again it's slowing yourself down, it's not doing what comes naturally. Because

51:57 Trying to convince them is a prime pressure. Arguments, promises and threats. are always of prime pressure. And what you really want is understand You know, what you can do to make it easy for

52:12 To move your way. Very nonintuitive. That's a surprising thing when you deep negotiation. It's not obvious. You know, we are We are taught to apply pressure.

52:22 I mean. Sulfur line, that way. You mentioned that there was procedures for thinking in organizations. Uh are there any that stand out in your mind that we could use to elevate

52:35 thinking and if not elevate, but give feedback on the quality of thinking to improve it. Well I think one of the ideas that people like the most Is an idea. By Gary Klein.

52:47 What he calls the pre mortem. And that's the That's the universal winner, people really like that idea. And this is that when you're about to make a decision. A group.

52:58 Mm. Not quite, because if you've made it it's too late, but You're approaching it. And then You get people in a room.

53:07 can be the people who are making the decision. And if the Suppose It's two years from now. Um we made the decision.

53:16 that we're contemplating. And it turned out to be a disaster. No You have a page in front of you. Write the history of that disaster in Bullet. That's the pre mortal.

53:27 And And it's beautiful as an idea. It's beautiful because When people are coming close to a decision, it becomes Difficult to raise doubts.

53:39 people who uh slowing the group down when the group's nearing a decision. Opera's really You know.

53:48 You know, there's You want to get rid of them. And The premortum legitimizes. That sort of defense and that sort of doubts. not only legitimizes it, you know, it rewards it.

54:02 And so that's a very good idea. I don't You know, I don't think that it's going to can prevent people from making mistakes, big mistakes. But it could Certainly it will alert people. Two possible

54:16 loopholes to to things that they ought to do to make us safer this is So that's a That's a good procedure. And there are many others.

54:25 What comes to mind. What comes to mind is Is to make it Intelligence. I mean the collection of of the information.

54:35 Independent. of the decision makers' wishes. And you really want to protect the independent. Other people are collecting the evidence. And other odds.

54:46 So you know a procedure that really people don't like. But If it were possible to implement it, I think it would be good. And that's

54:57 That when you're going to be discussing a topic and it's known in advance and people in sense and material to think about the topic. That You may want them to Right down there the

55:09 The decision they are in favor of. before the discussion starts. That has many advantages. It's going to give you a broader diversity of points of view.

55:22 Uh in a in a group discussion. And it forces people to be better prepared. Shoot. It's

55:31 Except People don't want this. Uh So I I don't know whether it's even possible to implement it, but clearly

55:40 If you could. Would be a good idea. One of the reasons people don't want it. Too much work. Right. Forces you to do a bunch of w rather than the signaling you can sort of get away with, which is Yeah, and then you know, there's somebody who's going to prepare the case and

55:55 So I glanced at the material and then you know So A lot of them. Meetings. Uh

56:03 Tremendous to think for Waste of time. And improving the quality of meetings. Would be Big thing.

56:11 Do you have any insights on how to do that? Keeping them short. You know, I'm not a professional at uh fixing meetings, so S I have a few ideas but not an complete view.

56:25 The question of structuring the meetings to be discussing topics one at a time. That I think is is really useful. I'll give you an example. I mean it's something that I suggested when I was consulting.

56:40 But For some reason people didn't buy that suggestion. So You When an investment is being discussed. So buy investment firm.

56:51 Some staff people if it's a big investment stuff people will prepare a briefing book. With chapters. No Our recommendation would be That the staff

57:03 should end each chapter with a score. How does That chapter taken on its own independently of anything else. Affect the Likely decision.

57:14 And then you could structure the meeting that discusses this and The meeting of the boards, right? To discuss these scores. Bueno, esto. That has the effect that I was talking about earlier. Making the decision, making the

57:29 Judgments about the dimensions, we call them. Mediating assessments is a dragon to Uh the mediating assessments come first. And then you have a profile of them. And then you make a global judgment.

57:43 And you can structure it. So if The stuff has presented a score. And you discuss

57:51 In the board. Do we accept this call? You're forcing people to have a look at the evidence. And think about why they would have to reject and then they they feel like they have to construct an argument that might be less intuitive. That's it. So

58:07 You know. There are ways of Doing this. But uh If you're going to be too wishes,

58:14 About it, it won't work either. So I'm curious what other advice you gave as a consultant that nobody followed. Oh I mean virtually. All the advice I give people don't follow. I mean, you know, I think that's That's not you shouldn't you know, you're not going to be a a consultant if you expect your advice to be taken. You have to give the best advice you can.

58:35 W what would be other examples of something you think would be widely applicable that you would advise you would have advised people And you just sort of like saw them drop the ball. Well, I mean you know, I would advise People who make a lot of decisions. To keep track.

58:52 Their decisions. And of how they turned out. So that later you can come and And evaluate your procedures and Um feel.

59:03 Whether there is anything that in common with those decisions that turned out well and then not so well and so on. People hate doing this. W why do you think people hate doing it? Oh because

59:16 Because retrospectively. They may look Foolish, some of them or all of them, or in particular the leader. So they really don't like keeping track. I mean there are exceptions. Uh Ray Dalio um.

59:30 And his firm and Everything is explicit. Yeah. Yeah. But In general.

59:38 In my haven't consulted with Bridgewater, they don't mean me. But but in general Then I suggested that. Never went anywhere. What are the variables that you would recommend people keep track of? Like what would your decision journal look like?

59:52 Oh I mean I My my decision, Juno, would be a miss. I don't, uh I'm not putting myself as an example. But So obviously the outcome, but you gotta do that.

1:00:04 What were the main Arguments. Pro and calm. What were the alternative that were considered?

1:00:16 No, it doesn't have to be very detailed. But it should be enough so that you can Come later and debrief yourself. So you have a calibration, like what degree of confidence you are? That would be good.

1:00:29 I mean, you know, it would depend on Something that you could evaluate later. It strikes me that decision journals and premortems are a way to Identify people That are sort of

1:00:44 Um Perhaps. suppressed by their manager, where you have somebody who's actually a better better at exercising judgment than the person that is you know, that they're working for. And this would be a pain free sort of way to calibrate that score over time and identify

1:01:02 the quality of judgment in a consistent way. Well yeah, I mean uh That strikes me as worth a lot of money to an organization. Yeah. But But also very costly. And you you will see that

1:01:15 Certainly anything that threatens the leader is not going to be adopted. And And leaders may not want something that threatened their subordinates either. People are really very worried about embarrassment. You're writing a book now on noise. Tell me about noise and decision making. Can you explain the concept?

1:01:34 Yeah. I can I really explain it by Saying would You know, was the the beginning of it. And which was a consulting assignment.

1:01:44 than an insurance company. Where we I had the idea of I'm running. A this. To think

1:01:52 Whether it people in a given role who are supposed to be interchangeable. Agreed with each other. So you know, when you come to insurance company and An underwriter gives you a premium.

1:02:05 The underwriter speaks for the company. And so the it's Expect that any underwriters. But it doesn't matter which underwriter you get.

1:02:14 For the premium. And the company has that expectation. Shouldn't make much difference. So we just did that and They constructed some cases.

1:02:24 And then we had some like fifty underwriters as the supreme for the case. With the same information. Mm-hmm. Yeah, with a really very realistic we didn't construct it. They constructed the case. So

1:02:37 And they conducted the experiment. But now The interesting question is How much variation do you expect there to be? So We asked the executives.

1:02:49 The following question. Suppose you take two underwriters at random, by what percentage do they differ? I mean you look at the difference between the premium divide that by the average premium. What number do you get? Uh people expect Then possible.

1:03:04 By the way, it's not only the executives in that company for some reason. People expect ten percent. Um it was roughly fifty percent. Five zero. So that's You know, that's what made me curious about Morris.

1:03:17 Uh that and the fact that the company was completely unaware that it had been always falling. It took them completely boost it to us. So now we're writing a book because There's a lot of noise. So wherever A rule is that

1:03:31 Wherever there is judgment there is noise. And more of it than you think. So that's the pattern. Are there procedures to reduce noise? And conversely, it is noise a it strikes me that the variation would be good, but maybe only in an evolutionary concept. Well.

1:03:47 We call that noises useless variability. I mean variability can be very useful if you have a selection mechanism. And some feedback. So evolution is built uh Variability, but and of course it's useful.

1:04:02 But Noise among underwriters is useless. There's nothing. Nothing gets loomed. There's no feedback.

1:04:10 It's Just know this. And it's costly. The first advice of course would be Algorithms as I said earlier.

1:04:19 So algorithm are better than people. That's not intuitive, but it's really That's really true. And And after that

1:04:29 then you know the procedure that I mentioned earlier. for making decisions in an orderly way by Brit Breaking it up into assessments and That's the best that we can do.

1:04:40 And and there is one very important aspect that I haven't mentioned, but and this is training people In But the scale is. So there is one piece of advice that you'd have. for underwriters that they should

1:04:55 Always compare the case to other cases. And if possible If You can have them. share the same frame of reference with other underwriters, you're going to cut down on the the noise.

1:05:11 Oh, that's a clear idea, yeah. The scale. And that exists in And human resources. Where

1:05:19 Performance evaluation which is one of the scandals of modern commerce uh how difficult it is, but Performance evaluation. They have the thing that's called frame of reference training. Which is teaching people

1:05:34 You know, how to use the scale. There's a lot of variability in the scale. Um A point of boil The super forecasters do.

1:05:44 They make judgments in probability units. And they teach them to use the probability scale. Salooning. The scale. is a very important aspect of reducing notes.

1:05:55 I know we're we're coming out to the end of our time here. What have you changed your mind on in the past ten years? Oh lords. Anything big? Yeah. There's been uh

1:06:06 Replication prices in psychology. And some of the stuff that I really believed in when I wrote Thinking Fast and Slow Some of the evidence has been discredited. So I've had to change my mind. What are the

1:06:23 priming and unconscious priming and So Just hasn't held up in replication. And I believed it and I wrote it. As if it were true because you know the the evidence suggests that it.

1:06:36 And in fact I thought that You had to accept it. Because That was published evidence. And

1:06:44 And I should have I blame myself. For having been a big gullible. That is I should have known that you can publish things even if they're not true. But I

1:06:54 Just doesn't think. That's true. So I'll I change my mind. I'm not much more Cautious about spectacular findings.

1:07:04 I mean very recently. I've come I think I have a theory. about why psychologists are prone or social scientists generally. are prone to exaggerate. the to be overconfident about

1:07:18 Their hypotheses. So But then put a bit of blood. Oh, the theory. The one element of the theory.

1:07:28 Is that All these hypotheses are true. In what sense? But you know, if I There's a famous study.

1:07:37 That you mentioned wrinkles to people. Um then You measure the speed at which they walk and they walk more slowly. Turns out that hasn't held up in replication. Which is

1:07:47 Very painful, it's one of the favorite studies. But Naturally you know that if you mention Grinkel and it's going to have any effects um The speed of walking. It's not going to make people faster.

1:08:00 has any influence, it's going to make them slower. So directionally all these hypotheses are tree. But What there is is What people don't see. Is

1:08:13 But Then huge number of factors that determine the speed at which individuals walk. And the difference is in the speed of walk in between individuals. And

1:08:25 That's noise. And people neglect more. And then there is something else. Which is touches on both philosophy and and psychology.

1:08:36 When you have intuitions about things, though Clear intuitions and there are strong intuitions. Another site. So clear intuition. Is if I offer you a trip to Rome a trip to Rome and an ice cream cone.

1:08:50 You know What you prefer. It's easy. But it's very weak, of course, I mean the amount of money you would pay to it. A trip to Rome and a trip to Rome in an ice cream court.

1:08:59 Nothing. But When you are philosopher And I should add one thing. To see

1:09:06 Clear intuitions. You have to be in this kind of situation that psychologists call within subject. That you have Both.

1:09:15 You have both the with the ice speed cold and without the ice speed cold. So You know, within subject situation, that's an easy problem. In a between subject situation it's an impossible problem. But now if you're a philosopher.

1:09:29 You're always in a within subject situation. And but people live in a between subject situation. They live you know in once. Condition. And the same thing is true for psychologists.

1:09:41 So Psychologists live in a When they Cook up the hypotheses there in a Within subject situation.

1:09:50 But then they make guesses about what will happen between subjects. And they're completely lost between Team intuitions. And strong intuition. We have no way of calibrating ourselves.

1:10:02 So that makes us wildly overconfident about what we know. And reluctant. To accept That we may be wrong. Uh

1:10:13 That's a great place to end this conversation, Danny. Thank you so much. Thanks and learning with us. Be sure to sign up for my free weekly newsletter at fs.blog/slash newsletter. The Farnum Street website is also where you can get more info on our membership program. which includes access to episode transcripts, my repository, ad-free episodes, and more. Follow myself and Farnum Street on X, Instagram, and LinkedIn to stay in the loop. Plus, you can watch full episodes on our YouTube channel. If you like what we're doing here, leaving a rating and review would mean the world. And if you really like us, sharing with a friend is the best way to grow this community. Until next time.

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