I’m two-thirds through Daniel Kahenman’s [amazon_link id=”B005MJFA2W” target=”_blank” ]Thinking, Fast and Slow[/amazon_link], and will be posting a review early next week. It is one of the best books I’ve read all year, and it will change the way I think and work. There are not many books that change anybody’s mind about anything – most of us read to get support for the thing we already believe – so that’s already pretty high praise!

As a curtain-raiser, I wanted to quote from a section where Kahneman describes how he resolved a disagreement with Gary Klein, and advocate of ‘Naturalistic Decision Making’ who argued that the evidence indicated experts, thanks to their experience, are able to make intuitive and speedy decisions about problems that are better than the decisions non-experts would make. Kahneman (and his co-author Amos Tversky) argued that, on the contrary, experts are prone to all kinds of psychological biases including over-confidence and the failure to take account of evidence that contradicts their views, and do no better than non-experts.

In this book, Kahneman writes:
“We eventually concluded that our disagreement was due in part to the fact that we had different experts in mind. Klein had spent much time with fireground commanders, clinical nurses and other professionals who have real expertise. I had spent more time thinking about clinicians, stockpickers and political scientists trying to make unsupportable long-term forecasts. … He was more willing to trust experts who claim an intuition because, as he told me, true experts know the limits of their knowledge. I argued that there are many pseudo-experts who have no idea that they do not know what they are doing.” (p239)

Clearly Kahneman could add economists to his list. This isn’t the first call for economists to have more humility about the limits of what can be forecast, but it is one of the most forceful. More generally, this question of the context in which one is trying to make decisions seems to me to be an interesting aspect of behavioural economics – the kind of heuristics Kahneman describes in this book clearly apply in conditions of uncertainty with many ‘unknown unknowns’, but equally conventional and seemingly simple-minded economic models make very good predictions in other contexts; market/auction design is one of the success stories in economics. I think the boundary conditions are very interesting. This issue also underlines the urgent need to reintroduce uncertainty back into economics – as argued here recently, in a review of [amazon_link id=”0674057759″ target=”_blank” ]Capitalist Revolutionary: John Maynard Keynes[/amazon_link], the basic lesson we need to take now from Keynes.

[amazon_image id=”B005MJFA2W” link=”true” target=”_blank” size=”medium” ]Thinking, Fast and Slow[/amazon_image]