Renowned Israeli-American psychologist and Nobel laureate Daniel Kahneman, whose groundbreaking work in the fields of behavioural economics and cognitive psychology vastly improved the understanding of human decision-making, passed away on March 27. He was 90.
Kahneman was born on March 5, 1934. In 2011, he published his bestseller Thinking, Fast and Slow, which offered an exploration of the human mind. His research earned him the Nobel Prize in Economic Sciences in 2002.
Here are some of Kahneman's quotes which are useful in decision-making as well as investing:
1. Importance: "Nothing is as important as we think it is while we are thinking about it."
2. Confidence: "Declarations of high confidence mainly tell you that an individual has constructed a coherent story in his mind, not necessarily that the story is true."
3. Predictions: "If you choose to delude yourself by accepting extreme predictions, however, you will do well to remain aware of your self-indulgence."
4. Future: "The idea that the future is unpredictable is undermined every day by the ease with which the past is explained."
5. Ignorance: "We’re blind to our blindness. We have very little idea of how little we know. We’re not designed to know how little we know."
6. Anecdotes: "People who have information about an individual case rarely feel the need to know the statistics of the class to which the case belongs."
7. Evidence: "For some of our most important beliefs, we have no evidence at all, except that people we love and trust hold these beliefs. Considering how little we know, the confidence we have in our beliefs is preposterous - and it is also essential."
8. Bad news: "The brains of humans and other animals contain a mechanism that is designed to give priority to bad news."
9. Losses: "A person who has not made peace with his losses is likely to accept gambles that would be unacceptable to him otherwise."
10. Risk-taking: "People who face very bad options take desperate gambles, accepting a high probability of making things worse in exchange for a small hope of avoiding a large loss. Risk-taking of this kind often turns manageable failures into disasters."
11. Overconfidence: "Organisations that take the word of overconfident experts can expect costly consequences … however, optimism is highly valued, socially and in the market; people and firms reward the providers of dangerously misleading information more than they reward truth tellers."
12. Memory reconstruction: "A general limitation of the human mind is its imperfect ability to reconstruct past states of knowledge, or beliefs that have changed. Once you adopt a new view of the world (or of any part of it), you immediately lose much of your ability to recall what you used to believe before your mind changed."
13. Survival: "Loss aversion - When directly compared or weighted against each other, losses look larger than gains. This asymmetry between the power of positive and negative expectations or experiences has an evolutionary history. Organisms that treat threats as more urgent than opportunities have a better chance to survive and reproduce."
14. Belief: "Neither the quantity nor the quality of the evidence counts for much in subjective confidence. The confidence that individuals have in their beliefs depends mostly on the quality of the story they can tell about what they see, even if they see little. We often fail to allow for the possibility that evidence that should be critical to our judgment is missing—what we see is all there is."
15. Pause and reflect: "If there is time to reflect, slowing down is likely to be a good idea."
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