Thinking, Fast and Slow by Daniel Kahneman

Published On: 08-Apr-2019

Thinking, Fast and Slow by Daniel Kahneman
Comments by Lalit Nambiar
April 2019

“Wisely and slow; they stumble that run fast.” 
― William Shakespeare

Fingerspitzengefühl; the Germans usually have a single word, usually a mouthful, which conveys quickly a complex notion requiring many words in the English language, (Schadenfreude and Doppelganger being especially popular today in English). This one means to have an intuitive instinct about any given situation, perhaps literally to keep one's finger on the pulse. ‘Gut feel’ is of course a popular narrative in financial markets, describing legendary investors who have an innate and immediate understanding of many situations. Similar qualities have been attributed to military generals, sportspersons and as reflected in popular fiction, to legendary detectives. This book goes a long way in explaining why we need to set limits to the suitability of quick judgements especially in fields where it is easy to make mistakes or where mistakes can prove quite costly or both, (anything spring to mind ?). Noble-prize winning psychologist and economist, Kahneman, digs holes in our complacence regarding our thought processes.

The book essentially describes two systems of thinking undertaken by the brain, System 1 and System 2. The first trait produces fast thinking and the second triggers more deliberate and slow formation of judgement. In summary, the book argues that, based on recent research, the intuitive System 1 is more influential than we normally expect, and it is the hidden influencer of many of the choices and judgments we make. For all animals, a quick response to a)serious threats or b)lucrative breaks improved the chances of survival. “Allocation of attention has been honed by a long evolutionary history… Even in modern humans, System 1 takes over in emergencies …imagine a car that unexpectedly skids on a large oil slick. You will find that you have responded to the threat before you became fully conscious of it.”

According to Kahneman, the ease with which humans are satisfied enough to stop thinking is rather troubling. The law of least effort states that your brain uses the minimum amount of energy for each task it can get away with. He draws a link between the thought biases which behavioural economists have identified as keep us from behaving like homo oeconomicus, the hypothetical human who classical economists believed, acts based purely on rational thinking, who does not resemble us at all in real life. The book helped me realise that in order to raise one’s thought processes, one needs to be more ‘engaged’ and less willing to be satisfied with superficially attractive answers. Any delusions one may harbour of so-called intuitions or instincts must be kept well in check. Everyone has the option of slowing down to search his memory for all possibly relevant facts and they should also slow down to corroborate the obvious or intuitive answer. Kahneman shows you when you can, and more importantly, when you cannot trust your gut feeling. How to act more mindfully and take better decisions, whether it is in investing or in everyday life.

Author Bio

Lalit Nambiar
Mr. Lalit Nambiar is Executive Vice President and Fund Manager (Equity). He is a commerce graduate from Narsee Monjee College of Commerce, Mumbai and holds a post-graduate degree in management (MMS) from Sydenham Institute of Management, Mumbai University. He also holds a CFA charter awarded to him in 2005 by the CFA Institute, USA. He joined UTI AMC Limited in Dec 2006 as a Vice President in Securities Research; he took up portfolio responsibilities in July 2007. In September 2008, he took up the role of Head of Research, in addition to his portfolio responsibilities. He led UTIMF's equity research team for nearly a decade, before moving in to the role of a dedicated portfolio manager in April 2017. Lalit began his career in June 1994, with IIT InvesTrust Limited, where, after a brief stint in investment banking, he joined their equity research team and eventually covered Banks and Consumer Staples. He later joined UTI Securities Limited in 1999; where he added the healthcare sector to his research repertoire. In Jan'04, he joined SBI Capital Markets Limited in the role of a senior analyst, covering multiple sectors while also helping mentor a team of analysts.