Decision Making and Math

¶ … Slow

Provide a brief synopsis of the book parts you have read.

Part I of the book Thinking Fast and Slow begins by outlining the two systems that are at play in any normal human higher intelligence. The basic premise of the two systems approach to human cognitions is defined as (Kahneman, 2011):

• System 1 operates automatically and quickly, with little or no effort and no sense of voluntary control.

• System 2 allocates attention to the effortful mental activities that demand it, including complex computations. The operations of System 2 are often associated with the subjective experience of agency, choice, and concentration.

The first system is based off of automatic processes that our brain goes through without any hesitation using instincts or heuristics to form an opinion.

An example is given in the introduction of an individual trying to decide whether or not to purchase Ford stocks. The individual named has a favorable impression of the Ford vehicles and something to the effect of "man, does Ford really know how to make cars" describes the individual's sentiment and it is clear that the person really likes Fords products. However, the investment decision is more complex than whether or not Ford makes great vehicles. These decisions involve the market price, the company's strategy, the capital budgeting structure of the company, examination of its financial statements and its position among others. However, the person may be basing their decision on their system I thinking (thinking fast), and not considering the broader considerations that would allow for better decisions.

System II thinking (slow thinking), by contrast, uses the more structured and calculating approach to decision making. There are many examples that are given in the form of math problems. However, even the fast thinking approach can be a part of even solving complex math problems in some cases. For example, you can either use fast thinking based on heuristics that you have learned in math to form an estimate, or you can tediously work out the problem mutinously with pen and paper. Furthermore, there is also the possibility (which is the most probable route in most people's reality) to use some combination of the two types of systems even when they are under the impression that they are being strictly objective. For example, even when meticulously working out a math problem, there can be biases or heuristics that are in play during each stage of the problem solving.

Thus, system I and system II, or fast and slow thinking, exist in a perpetual state of coexistence with each other and it can be difficult in many cases to separate them completely. When an individual is forced to make an immediate decision, often under pressure and on the spot, it is likely that the system I approach does most of the work. However, in most decisions that are made with some amount of fore thought, there will be some combination of the two systems at play. It is the over reliance on the system I system and the unintended biases that it presents, that can lead even the world's leading experts to be overconfident in their decision making abilities from a truly objective perspective. The rest of the book builds upon these underlying principles and applies them different situations.

1. Does this book reading changed any of your views about decision making and/or risk management? Why or why not? Provide any examples.

(give a practical example that's in line with the book content, Nothing over the top)

This book has deeply affected my perception of decision making and risk management in many ways, both personally and professionally. In general, I have become more aware of how my own biases creep into my decision making in almost every aspect of my life. In regards to my professional decision making skills, the existence of different heuristics that I've learned in school as well as in other areas of my life in general. While some of these heuristics may be valuable and even correct in many circumstances, relying on them alone could definitely put me in a position in which I might be subject to poor decision making.

One example I can think of might be the idea furthering my education even further into graduate school. I feel that an even higher skill set and the credentials that I would be awarded would be able to enhance my future career. However, I also realize that this is potential just-based mostly off of "fast thinking" and I have not necessarily taken an analytic approach to considering this as a potential career path. Based on the insight that I may be guided solely on my own heuristics, I would likely benefit from taking a more systematic approach and consider the situation as objectively as possible.

For example, I could make a list of the skills that I think I might gain from this pursuit and consider whether or not I could gain them on my own, or from other sources. Another example might be some kind of cost and benefit analysis in which I factored in the cost of school (including living expenses and opportunity costs), and the expected financial benefits that might be gained from the further credentialing. The basic idea would be to try to examine the situation as objectively as possible from different perspectives. Even if I came to the same conclusion at the end, using a more objective process, as opposed to heuristics alone, would essentially led to a better and more informed decision in the end.

What are the three most important lessons you have learned from this book?

I think the single most important lesson that I have learned from this book would be the concept of intellectual humility. Even in the decisions that we are most confident about, may be subject to some form of bias or overconfidence. Whereas some of the decisions I have made in the past I did so with the utmost confidence and a sense of certainty, considering the evidence and the arguments that Kahneman presents in this book have shaken that sense of certainty to a large extent. I don't think I will even look at future decisions in exactly the same light as I have in the past.

However, it is not only the future decisions that I have come to question on some level. When Kahneman introduces the illusion of understanding and the notion of a narrative fallacy, this line of thinking also led me to question my own interpretations of past events. For example, there are stories that I have told many times over and I feel confident that they have a form of explanatory value and that I truly understood the circumstances that were important in the story. However, with a better understanding of my cognitive limitations, I have come to realize that my former sense of certainty in my interpretations of previous events was likely an example of overconfidence. While I'm sure I will still continue to tell many of my old stories in almost every aspect, I will do so with an increased awareness that my own perspective is subject error in the same sense that my present decision making is as well.

Describe two situations in a construction project (actual or a hypothetical project) where you would like to apply the lessons learned?

As a general project manager, I can think of two different levels in which I might like to apply these lessons to be a more objective manager during my future career. One I have already experienced and it deals with the day to day type decisions that one has to make on a regular basis. For example, I can recall an instance in which a project plan and a specific sub-contractor had different opinions about the best way to layout a foundation for a structure. The sub-contractor made an argument that went along the lines of "trust me, I have been working in this area for a long time and I fully understand the situation". My heuristic in the situation was to immediately go with the opinion of the sub and to trust his experience over the architect.

We had worked together on other projects and I had never had any issues with his work so we had developed a level of trust and I thought he was probably right. Also, his opinion called for less material, and would also save the company money. There have been other instances in which I have had to make snap decisions during projects in a similar manner. Although I don't know of any instances of a quality problem that may have resulted because of such a deviation to the project plan, in hindsight, I find myself questioning my own judgement about whether or not such deviations from the plan are really ok. Going forward, I will likely seek to find more objective criteria to base such decisions. While someone individual experience in such matters might be invaluable, it is likely also prudent to cross-check, if nothing else, to ensure such decisions are justified and that the project isn't subject to personal biases.