The Wisdom of Daniel Kahneman
reason is, and ought only to be, the slave of the passions and can never pretend to any other office than to serve and obey them.
David Hume
Who the heck is Daniel Kahneman, and why should we be spending valuable time talking about someone who is never on the news, looks like the archetype of a nerdy college professor (adorned in khaki pants and scuffed brown shoes), has never invented an electric car, has never thrown a touchdown pass, and about whom no one has ever described as a “GOAT”?
Thought Leaders
Every generation has its “Thought Leaders.” [1]
Thought Leaders are sages.
They contribute to the collective wisdom of our species.
Sometimes Thought Leaders come up with new and better theories about how the world works, and sometimes they see the same old thing we see every day but in a new light.
Thales of Miletus [2], first in any book on the history of western philosophy, one of the “Seven Sages” in ancient Greece, gobsmacked his colleagues in the 7th Century BCE by predicting an eclipse.
At the time, lesser minds believed such events occurred at the whims of mythological gods.
Democritus (4th-5th Century, BCE) developed the theory that matter provides the foundation for “reality,” and “atoms” provide the foundation for matter.
Legend has it that Democritus so loved his atomic theory that he went around laughing about his discovery to the point that people called him “the Laughing Philosopher.”
Socrates taught us a new way of thinking: rationally, with the help of something called the “dialectical method.”
Epicurus, who ran a major “university” in 4th Century Greece, [3] popularized atomic theory.
The Roman poet, Lucretius expanded on atomic theory in a long poem, The Nature of Things, putting forth his ideas of why nature is so unpredictable. [4]
This list would also include rather obvious candidates such as Moses, Buddha, Lao Tzu, Jesus of Nazareth, Galileo, Newton, Gandhi, Darwin, Frederick Douglass, Niels Bohr, Sarah Weddington, and Steve Jobs.
And, dare I include Lenny Bruce?
Lenny Bruce, love him or hate him, taught us to reconsider words, especially expressions of racism and bigotry, opening doors for George Carlin, Richard Pryor, and Eddie Murphy.
Lenny may have been a heroin addict, but he was a Thought Leader. [5]
You have probably figured out by now that I am nominating Kahneman for the Thought Leaders Club.
Why?
I’ll give you one good reason for now, with many more to come.
Debunking the Myth of the Rational Man
In my latter days as an undergraduate at Washington University in St. Louis, between dodging tear gas at anti-war rallies (1969), watching my fellow students burn ROTC buildings, and singing along to In-A-Gadda-A-Da-Vida, [6] with glazed eyes, I was trying to decide whether to major in Economics or stay in the B-School. I had delayed picking a major as long as I could. Deadlines were looming, and I was staring down both barrels of the draft.
I eventually shunned the practical, short-haired conservatives of the B-School and went with a more flexible major in Economics, having little or no sense of direction.
At that time, Milton Friedman ruled Economics.
College professors universally used his text book.
It was not, and has not been banned in Florida. [7]
Friedman preached the fundamental gospel of capitalism: “the rational man” theory.
A rational man will not pay more for something than it is worth, so it goes.
If you offer him goods or services, and the price is too high, he will pass; if the price is low, he will buy.
The market reaches a point of “equilibrium” when supply meets demand (it’s hard to argue with a system where the “x axis” meets the “y axis”).
Leave the markets alone and the “invisible hand” of the rational man will be regulation enough for stable markets. [8]
As far as I know, the “rational man standard” occupied the corner office of economic theory from Adam Smith (18th Century) [9] until a school of thinkers called “behavioral economists” came along.
This group of independent thinking radicals included Kahneman, his collaborator, Amos Tversky, and Dan Ariely.
Through a series of experiments, they debunked the myth of the “rational man,” exposing him for what he is: irrational.
In 2009, Dan Ariely, professor of psychology at Duke and author of Predictably Irrational and The Upside of Irrationality, wrote an article for the Harvard Business Review, which included the following:
We are now painfully blinking awake to the falsity of economic theory – that human beings are capable of always making rational decisions and that markets and institutions, in the aggregate, are healthily self-regulating.
We are finally beginning to understand that irrationality is the real invisible hand that drives human decision making.
Drawing on aspects of both psychology and economics, the operating assumption of behavioral economics is that cognitive biases often prevent people from making rational decisions, despite their best efforts.
Kahneman published his magnum opus, Thinking Fast and Slow, in 2011. To quote the cover notes:
Daniel Kahneman, recipient of the Nobel Prize in Economic Sciences for his seminal work in psychology that challenged the rational model of judgment and decision making, is one of our most important thinkers. His ideas have had a profound and widely regarded impact on many fields – including economics, medicine, and politics – but until now, he has never brought together his many years of research and thinking in one book.
If you are looking for an exciting non-fiction book, something by say, Jon Krakauer, you may find Thinking Fast & Slow a challenge.
No one dies climbing Mt. Everest or exploring the Alaskan outback.
Thinking Fast & Slow is not a text book, but it seems like one at times.
Each chapter explains a new theory of how the mind works or a psychological study designed to demonstrate important new concepts about how we make decisions like “heuristics,” “cognitive biases,” “cognitive ease,” “anchors,” “priming,” “the endowment effect,” and, well, you’ll see.
It was not that long ago when one never heard of heuristics, cognitive biases, cognitive ease, or anchors.
Now, if you are a professional negotiator, a mid-level manager, or just a shlep trying to keep a dysfunctional family intact, Kahneman is a must-read.
Let’s start with the basics: Who is Daniel Kahneman? Where did he come from? How does his work prove he is a Thought Leader?
It’s going to take more than one post to cover his contributions to wisdom.
It may take some digging, but I promise you the gold we discover will be worth it.
Hang in there!
[1] If memory serves, I owe Ross Hostetter a debt of gratitude for the phrase, “Thought Leader,” a Thought Leader himself in the field of dispute resolution, among many others. Ross is what we used to call “Cosmic.”
[2] Despite rumors to the contrary, Thales popularized the ancient wisdom of “Know Thyself,” sometimes attributed to Socrates and sometimes to the Oracle of Delphi.
[3] But was not an “epicurean” in the modern sense, preferring a diet of primarily bread and water.
[4] There is a wonderful book about this called The Swerve by Stephen Greenblatt.
[5] If we wanted to explore here, we could probably come up with a list of Thought Leaders who used drugs. Freud comes to mind. The Beatles?
[6] Iron Butterfly.
[7] a/k/a “land of the lucky slaves.”
[8] In Free Markets, Professor Jacob Soll does an excellent job of describing the dramatic failures of the Friedman’s laissez faire system: the shrinking middle class in America and the government’s bailout of, not just banks, but the entire financial system: a slap not only at Friedman, but at Alan Greenspan and Ayn Rand, as well.
[9] The Wealth of Nations (1776). There is an interesting connection between 1st Century BCE Roman, Cicero; Adam Smith; David Hume; and the Stoics: for another day. Ironically, the man credited with the genesis of “free market economics” (Smith) made his living as a tax collector and believed that oligarchies should be the ruling form of government.