Thinking, Fast and Slow (54 page)

There are cases in which a disadvantage can be framed either as a cost or as a loss. In particular, the purchase of insurance can also be framed as a choice between a sure loss and the risk of a greater loss. In such cases the cost-loss discrepancy can lead to failures of invariance. Consider, for example, the choice between a sure loss of $50 and a 25% chance to lose $200. Slovic, Fischhoff, and Lichtenstein (1982) reported that 80% of their subjects expressed a risk-seeking preference for the gamble over the sure loss. However, only 35% of subjects refused to pay $50 for insurance against a 25% risk of losing $200. Similar results were also reported by Schoemaker and Kunreuther (1979) and by Hershey and Schoemaker (1980). We suggest that the same amount of money that was framed as an uncompensated loss in the first problem was framed as the cost of protection in the second. The modal preference was reversed in the two problems because losses are more aversive than costs.

We have observed a similar effect in the positive domain, as illustrated by the following pair of problems:

A total of 132 undergraduates answered the two questions, which were separated by a short filler problem. The order of the questions was reversed for half the respondents. Although it is easily confirmed that the two problems offer objecti coffler problevely identical options, 55 of the respondents expressed different preferences in the two versions. Among them, 42 rejected the gamble in Problem 10 but accepted the equivalent lottery in Problem 11. The effectiveness of this seemingly inconsequential manipulation illustrates both the cost-loss discrepancy and the power of framing. Thinking of the $5 as a payment makes the venture more acceptable than thinking of the same amount as a loss.

The preceding analysis implies that an individual’s subjective state can be improved by framing negative outcomes as costs rather than as losses. The possibility of such psychological manipulations may explain a paradoxical form of behavior that could be labeled the dead-loss effect. Thaler (1980) discussed the example of a man who develops tennis elbow soon after paying the membership fee in a tennis club and continues to play in agony to avoid wasting his investment. Assuming that the individual would not play if he had not paid the membership fee, the question arises: How can playing in agony improve the individual’s lot? Playing in pain, we suggest, maintains the evaluation of the membership fee as a cost. If the individual were to stop playing, he would be forced to recognize the fee as a dead loss, which may be more aversive than playing in pain.

Concluding Remarks

The concepts of utility and value are commonly used in two distinct senses: (a) experience value, the degree of pleasure or pain, satisfaction or anguish in the actual experience of an outcome; and (b) decision value, the contribution of an anticipated outcome to the overall attractiveness or aversiveness of an option in a choice. The distinction is rarely explicit in decision theory because it is tacitly assumed that decision values and experience values coincide. This assumption is part of the conception of an idealized decision maker who is able to predict future experiences with perfect accuracy and evaluate options accordingly. For ordinary decision makers, however, the correspondence of decision values between experience values is far from perfect (March 1978). Some factors that affect experience are not easily anticipated, and some factors that affect decisions do not have a comparable impact on the experience of outcomes.

In contrast to the large amount of research on decision making, there has been relatively little systematic exploration of the psychophysics that relate hedonic experience to objective states. The most basic problem of hedonic psychophysics is the determination of the level of adaptation or aspiration that separates positive from negative outcomes. The hedonic reference point is largely determined by the objective status quo, but it is also affected by expectations and social comparisons. An objective improvement can be experienced as a loss, for example, when an employee receives a smaller raise than everyone else in the office. The experience of pleasure or pain associated with a change of state is also critically dependent on the dynamics of hedonic adaptation. Brickman and Campbell’s (1971) concept of the hedonic treadmill suggests the radical hypothesis that rapid adaptation will cause the effects of any objective improvement to be short-lived. The complexity and subtlety of hedonic experience make it difficult for the decision maker to anticipate the actual experience that outcomes will produce. Many a person who ordered a meal when ravenously hungry has admitted to a big mistake when the fifth course arrived on the table. The common mismatch of decision values and experience values introduces an additional element of uncertainty in many decision problems.

The prevalence of framing effects and violations of invariance further complicates the relati ces maker won between decision values and experience values. The framing of outcomes often induces decision values that have no counterpart in actual experience. For example, the framing of outcomes of therapies for lung cancer in terms of mortality or survival is unlikely to affect experience, although it can have a pronounced influence on choice. In other cases, however, the framing of decisions affects not only decision but experience as well. For example, the framing of an expenditure as an uncompensated loss or as the price of insurance can probably influence the experience of that outcome. In such cases, the evaluation of outcomes in the context of decisions not only anticipates experience but also molds it.

References

Allais, M., and O. Hagen, eds. 1979.
Expected Utility Hypotheses and the Allais Paradox
. Hingham, MA: D. Reidel.

Bernoulli, D. 1954 [1738]. “Exposition of a New Theory on the Measurement of Risk.”
Econometrica
22: 23–36.

Brickman, P., and D. T. Campbell. 1971. “Hedonic Relativism and Planning the Good Society.” In
Adaptation Level Theory: A Symposium
, ed. M. H. Appley. New York: Academic Press, 287–302.

Clark, H. H., and E. V. Clark. 1977.
Psychology and Language
. New York: Harcourt.

Erakar, S. E., and H. C. Sox. 1981. “Assessment of Patients’ Preferences for Therapeutic Outcomes.”
Medical Decision Making
1: 29–39.

Fischhoff, B. 1983. “Predicting Frames.”
Journal of Experimental Psychology: Learning, Memory and Cognition
9: 103–16.

Fischhoff, B., P. Slovic, and S. Lichtenstein. 1980. “Knowing What You Want: Measuring Labile Values.” In
Cognitive Processes in Choice and Decision Behavior
, ed. T. Wallsten. Hillsdale, NJ: Erlbaum, 117–41.

Fishburn, P. C., and G. A. Kochenberger. 1979. “Two-Piece von Neumann–Morgenstern Utility Functions.”
Decision Sciences
10: 503–18.

Gregory, R. 1983. “Measures of Consumer’s Surplus: Reasons for the Disparity in Observed Values.” Unpublished manuscript, Keene State College, Keene, NH.

Hammack, J., and G. M. Brown Jr. 1974.
Waterfowl and Wetlands: Toward Bioeconomic Analysis
. Baltimore: Johns Hopkins University Press.

Hershey, J. C., and P. J. H. Schoemaker. 1980. “Risk Taking and Problem Context in the Domain of Losses: An Expected-Utility Analysis.”
Journal of Risk and Insurance
47: 111–32.

Kahneman, D., and A. Tversky. 1979. “Prospect Theory: An Analysis of Decision under Risk.”
Econometrica
47: 263–91.

———. 1982. “The Simulation Heuristic.” In
Judgment Under Uncertainty: Heuristics and Biases
, ed. D. Kahneman, P. Slovic, and A. Tver c, aistsky. New York: Cambridge University Press, 201–208.

Knetsch, J., and J. Sinden. 1984. “Willingness to Pay and Compensation Demanded: Experimental Evidence of an Unexpected Disparity in Measures of Value.”
Quarterly Journal of
Economics
99: 507–21.

March, J. G. 1978. “Bounded Rationality, Ambiguity, and the Engineering of Choice.”
Bell
Journal of Economics
9: 587–608.

McNeil, B., S. Pauker, H. Sox Jr., and A. Tversky. 1982. “On the Elicitation of Preferences for Alternative Therapies.”
New England Journal of Medicine
306: 1259–62.

Payne, J. W., D. J. Laughhunn, and R. Crum. 1980. “Translation of Gambles and Aspiration Level Effects in Risky Choice Behavior.”
Management Science
26: 1039–60.

Pratt, J. W., D. Wise, and
R. Zeckhauser. 1979. “Price Differences in Almost Competitive Markets.”
Quarterly Journal of Economics
93: 189–211.

Savage, L. J. 1954.
The Foundation of Statistics
. New York: Wiley.

Schlaifer, R. 1959.
Probability and Statistics for Business Decisions
. New York: McGraw-Hill.

Schoemaker, P.J.H., and H. C. Kunreuther. 1979. “An Experimental Study of Insurance Decisions.”
Journal of Risk and Insurance
46: 603–18.

Slovic, P., B. Fischhoff, and S. Lichtenstein. 1982. “Response Mode, Framing, and InformationProcessing Effects in Risk Assessment.” In
New Directions for Methodology of Social and
Behavioral Science: Question Framing and Response Consistency
, ed. R. Hogarth. San Francisco: Jossey-Bass, 21–36.

Thaler, R. 1980. “Toward a Positive Theory of Consumer Choice.”
Journal of Economic Behavior and Organization
1: 39–60.

———. 1985. “Using Mental Accounting in a Theory of Consumer Behavior.”
Marketing Science
4: 199–214.

Tversky, A. 1977. “On the
Elicitation of Preferences: Descriptive and Prescriptive Considerations.” In
Conflicting Objectives in Decisions
, ed. D. Bell, R. L. Kenney, and H. Raiffa. New York: Wiley, 209–22.

Tversky, A., and D. Kahneman. 1981. “The Framing of Decisions and the Psychology of Choice.”
Science
211: 453–58.

von Neumann, J., and O. Morgenstern. 1947.
Theory of Games and Economic Behavior
, 2nd ed. Princeton: Princeton University Press.

I am fortunate to have many friends and no shame about asking for help. Every one of my friends has been approached, some of them many times, with requests for information or editorial suggestions. I apologize for not listing them all. A few individuals played a major role in making the book happen. My thanks go first to Jason Zweig, who urged me into the project and patiently tried to work with me until it became clear to both of us that I am impossible to work with. Throughout, he has been generous with his editorial advice and enviable erudition, and sentences that he suggested dot the book. Roger Lewin turned transcripts of a set of lectures into chapter draft s. Mary Himmelstein provided valuable assistance throughout. John Brockman began as an agent and became a trusted friend. Ran Hassin provided advice and encouragement when it was most needed. In the final stages of a long journey I had the indispensable help of Eric Chinski, my editor at Farrar, Straus and Giroux. He knew the book better than I did and the work became an enjoyable collaboration—I had not imagined that an editor could do as much as Eric did. My daughter, Lenore Shoham, rallied round to help me through the hectic final months, providing wisdom, a sharp critical eye, and many of the sentences in the “Speaking of” sections. My wife, Anne Treisman, went through a lot and did a lot—I would have given up long ago without her steady support, wisdom, and endless patience.

Introduction

prone to collect too few observations
: We had read a book that criticized psychologists for using small samples, but did not explain their choices: Jacob Cohen,
Statistical Power
Analysis for the Behavioral Sciences
(Hillsdale, NJ: Erlbaum, 1969).

question about words
: I have slightly altered the original wording, which referred to letters in the first and third position of words.

negative view of the mind
: A prominent German psychologist has been our most persistent critic. Gerd Gigerenzer, “How to Make Cognitive Illusions Disappear,”
European Review of
Social Psychology
2 (1991): 83–115. Gerd Gigerenzer, “Personal Reflections on Theory and Psychology,”
Theory & Psychology
20 (2010): 733–43. Daniel Kahneman and Amos Tversky, “On the Reality of Cognitive Illusions,”
Psychological Review
103 (1996): 582–91.

offered plausible alternatives
: Some examples from many are Valerie F. Reyna and Farrell J. Lloyd, “Physician Decision-Making and Cardiac Risk: Effects of Knowledge, Risk Perception, Risk Tolerance and Fuzzy-Processing,”
Journal of Experimental Psychology: Applied
12 (2006): 179–95. Nicholas Epley and Thomas Gilovich, “The Anchoring-and-Adjustment Heuristic,”
Psychological Science
17 (2006): 311–18. Norbert Schwarz et al., “Ease of Retrieval of Information: Another Look at the Availability Heuristic,”
Journal of Personality and Social Psychology
61 (1991): 195–202. Elke U. Weber et al., “Asymmetric Discounting in Intertemporal Choice,”
Psychological Science
18 (2007): 516–23. George F. Loewenstein et al., “Risk as Feelings,”
Psychological Bulletin
127 (2001): 267–86.

Nobel Prize that I received
: The prize awarded in economics is named Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel. It was first given in 1969. Some physical scientists were not pleased with the addition of a Nobel Prize in social science, and the distinctive label of the economics prize was a compromise.

prolonged practice
: Herbert Simon and his students at Carnegie Mellon in the 1980s set the foundations for our understanding of expertise. For an excellent popular introduction to the subject, see Joshua Foer,
Moonwalking with Einstein: The Art and Science of Remem
bering
(New York: Penguin Press, 2011). He presents work that is reviewed in more technical detail in K. Anders Ericsson et al., eds.,
The Cambridge Handbook of Expertise and Expert Performance
(New York: Cambridge University Press, 2006.)

kitchen was on fire
: Gary A. Klein,
Sources of Power
(Cambridge, MA: MIT Press, 1999).

studied chess masters
: Herbert Simon was one of the great scholars of the twentieth century, whose discoveries and inventions ranged from political science (where he began his career) to economics (in which he won a Nobel Prize) to computer science (in which he was a pioneer) and to psychology.

“The situation…recognition”
: Herbert A. Simon, “What Is an Explanation of Behavior?”
Psychological Science
3 (1992): 150–61.

affect heuristic
: The concept of the affect heuristic was developed by Paul Slovic, a classmate of Amos’s at Michigan and a lifelong friend.

without noticing the substitution
:.

1: The Characters of the Story

offered many labels
: For reviews of the field, see Jonathan St. B. T. Evans and Keith Frankish, eds.,
In Two Minds
:
Dual Processes and Beyond
(New York: Oxford University Press, 2009); Jonathan St. B. T. Evans, “Dual-Processing Accounts of Reasoning, Judgment, and Social Cognition,”
Annual Review of Psychology
59 (2008): 25 {59 eight="0%"5–78. Among the pioneers are Seymour Epstein, Jonathan Evans, Steven Sloman, Keith Stanovich, and Richard West. I borrow the terms System 1 and System 2 from early writings of Stanovich and West that greatly influenced my thinking: Keith E. Stanovich and Richard F. West, “Individual Differences in Reasoning: Implications for the Rationality Debate,”
Behavioral and Brain Sciences
23 (2000): 645–65.

subjective experience of agency
: This sense of free will is sometimes illusory, as shown in Daniel M. Wegner,
The Illusion of Conscious Will
(Cambridge, MA: Bradford Books, 2003).

attention is totally focused elsewhere
: Nilli Lavie, “Attention, Distraction and Cognitive Control Under Load,”
Current Directions in Psychological Science
19 (2010): 143–48.

conflict between the two systems
: In the classic Stroop task, you are shown a display of patches of different colors, or of words printed in various colors. Your task is to call out the names of the colors, ignoring the words. The task is extremely difficult when the colored words are themselves names of color (e.g., GREEN printed in red, followed by Y ELLOW printed in green, etc.).

psychopathic charm
: Professor Hare wrote me to say, “Your teacher was right,” March 16, 2011. Robert D. Hare,
Without Conscience
:
The Disturbing World of the Psychopaths Among Us
(New York: Guilford Press, 1999). Paul Babiak and Robert D. Hare,
Snakes in Suits
:
When Psychopaths Go to Work
(New York: Harper, 2007).

little people
: Agents within the mind are called homunculi and are (quite properly) objects of professional derision.

space in your working memory
: Alan D. Baddeley, “Working Memory: Looking Back and Looking Forward,”
Nature Reviews: Neuroscience
4 (2003): 829–38. Alan D. Baddeley,
Your Memory: A User’s Guide
(New York: Firefly Books, 2004).

2: Attention and Effort

Attention and Effort
: Much of the material of this chapter draws on my
Attention and Effort
(1973). It is available for free download on my website (
www.princeton.edu/~kahneman/docs/attention_and_effort/Attention_hi_quality.pdf
). The main theme of that book is the idea of a limited ability to pay attention and exert mental effort. Attention and effort were considered general resources that could be used to support many mental tasks. The idea of general capacity is controversial, but it has been extended by other psychologists and neuroscientists, who found support for it in brain research. See Marcel A. Just and Patricia A. Carpenter, “A Capacity Theory of Comprehension: Individual Differences in Working Memory,”
Psychological Review
99 (1992): 122–49; Marcel A. Just et al., “Neuroindices of Cognitive Workload: Neuroimaging, Pupillometric and Event-Related Potential Studies of Brain Work,”
Theoretical Issues in Ergonomics Science
4 (2003): 56–88. There is also growing experimental evidence for general-purpose resources of attention, as in Evie Vergauwe et al., “Do Mental Processes Share a Domain-General Resource?”
Psychological Science
21 (2010): 384–90. There is imaging evidence that the mere anticipation of a high-effort task mobilizes activity in many areas of the brain, relative to a low-effort task of the same kind. Carsten N. Boehler et al., “Task-Load-Dependent Activation of Dopaminergic Midbrain Areas in the Absence of Reward,”
Journal of Neuroscience
31 (2011): 4955–61.

pupil of the eye
: Eckhard H. Hess, “Attitude and Pupil Size,”
Scientific American
212 (1965): 46–54.

on the subject’s mind
: The word
subject
reminds some people of subjugation and slavery, and the American Psychological Association enjoins us to use the more democratic
participant
. Unfortunately, the politically correct label is a mouthful, which occupies memory space and slows thinking. I will do my best to use
participant
whenever possible but will switch to
subject
when necessary.

heart rate increases
: Daniel Kahneman et al., “Pupillary, Heart Rate, and Skin Resistance Changes During a Mental Task,”
Journal of Experimental Psychology
79 (1969): 164–67.

rapidly flashing letters
: Daniel Kahneman, Jackson Beatty, and Irwin Pollack, “Perceptual Deficit During a Mental Task,”
Science
15 (1967): 218–19. We used a halfway mirror so that the observers saw the letters directly in front of them while facing the camera. In a control condition, the participants looked at the letter through a narrow aperture, to prevent any effect of the changing pupil size on their visual acuity. Their detection results showed the inverted-V pattern observed with other subjects.

Much like the electricity meter
: Attempting to perform several tasks at once may run into difficulties of several kinds. For example, it is physically impossible to say two different things at exactly the same time, and it may be easier to combine an auditory and a visual task than to combine two visual or two auditory tasks. Prominent psychological theories have attempted to attribute all mutual interference between tasks to competition for separate mechanisms. See Alan D. Baddeley,
Working Memory
(New York: Oxford University Press, 1986). With practice, people’s ability to multitask in specific ways may improve. However, the wide variety of very different tasks that interfere with each other supports the existence of a general resource of attention or effort that is necessary in many tasks.

Studies of the brain
: Michael E. Smith, Linda K. McEvoy, and Alan Gevins, “Neurophysiological Indices of Strategy Development and Skill Acquisition,”
Cognitive Brain Research
7 (1999): 389–404. Alan Gevins et al., “High-Resolution EEG Mapping of Cortical Activation Related to Working Memory: Effects of Task Difficulty, Type of Processing and Practice,”
Cerebral Cortex
7 (1997): 374–85.

less effort to solve the same problems
: For example, Sylvia K. Ahern and Jackson Beatty showed that individuals who scored higher on the SAT showed smaller pupillary dilations than low scorers in responding to the same task. “Physiological Signs of Information Processing Vary with Intelligence,”
Science
205 (1979): 1289–92.

“law of least effort”
: Wouter Kool et {ute979): 1289al., “Decision Making and the Avoidance of Cognitive Demand,”
Journal of Experimental Psychology—General
139 (2010): 665–82. Joseph T. McGuire and Matthew M. Botvinick, “The Impact of Anticipated Demand on Attention and Behavioral Choice,” in
Effortless Attention
, ed. Brian Bruya (Cambridge, MA: Bradford Books, 2010), 103–20.

balance of benefits and costs
: Neuroscientists have identified a region of the brain that assesses the overall value of an action when it is completed. The effort that was invested counts as a cost in this neural computation. Joseph T. McGuire and Matthew M. Botvinick, “Prefrontal Cortex, Cognitive Control, and the Registration of Decision Costs,”
PNAS
107 (2010): 7922–26.

read distracting words
: Bruno Laeng et al., “Pupillary Stroop Effects,”
Cognitive Processing
12 (2011): 13–21.

associate with intelligence
: Michael I. Posner and Mary K. Rothbart, “Research on Attention Networks as a Model for the Integration of Psychological Science,”
Annual Review of Psychology
58 (2007): 1–23. John Duncan et al., “A Neural Basis for General Intelligence,”
Science
289 (2000): 457–60.

under time pressure
: Stephen Monsell, “Task Switching,”
Trends in Cognitive Sciences
7 (2003): 134–40.

working memory
: Baddeley,
Working Memory
.

tests of general intelligence
: Andrew A. Conway, Michael J. Kane, and Randall W. Engle, “Working Memory Capacity and Its Relation to General Intelligence,”
Trends in Cognitive Sciences
7 (2003): 547–52.

Israeli Air Force pilots
: Daniel Kahneman, Rachel Ben-Ishai, and Michael Lotan, “Relation of a Test of Attention to Road Accidents,”
Journal of Applied Psychology
58 (1973): 113–15. Daniel Gopher, “A Selective Attention Test as a Predictor of Success in Flight Training,”
Human Factors
24 (1982): 173–83.

3: The Lazy Controller

“optimal experience”
: Mihaly Csikszentmihalyi,
Flow: The Psychology of Optimal Experience
(New York: Harper, 1990).