How useful is self-knowledge in decision making? Not very, according to Daniel Kahneman, author of Thinking, Fast and Slow. The Book Bench takes a look at Kahneman’s ideas—the most significant being that we suffer from loss aversion, which helps explain many of our most human qualities, like irrationality, stubbornness, and making mistakes.
“Unlike homo economicus, that imaginary species featured in macroeconomics textbooks, Kahneman and Tversky demonstrated that real people don’t deal with uncertainty by carefully evaluating all of the relevant information. They stink at statistics and rarely maximize utility. Instead, their choices depend on a long list of mental short cuts and intemperate emotions, which often lead them to pick the wrong options.”
