An Analysis On Intuition : Cognitive Bias Or A Fast Problem Solving Cognition

The ability for one to make rational decisions is vital, and this is especially true for decisions that can have enormous consequences. The process for making rational decisions is tedious, it requires one to have the opportunity to deeply process, evaluate, and re-evaluate available options. This suggests that rational decisions must be made in the absence of external parties because external influences are capable of preventing individuals from processing information for themselves. Otherwise, this would likely result in the individual coming to rash conclusions that cater to the external parties. Unfortunately, under most circumstances, it is a challenge to make rational decisions, because as social animals, we constantly expose

Kahneman’s systems of thought is largely built on the framework of Stanovich and West (2000; as cited in Kahneman, 2003). It describes two types of thought processes: system 1 (perception and intuition) and system 2 (reasoning).

Processing a human mind is a two-edged sword. With their overbearing nature and never-ending stream of thoughts, feeling, and impulses, these worry machines frequently help us achieve precisely the opposite of what we desire. (Qtd. In Smith

Kahneman argues that the illusion of validity comes from fast thinking because it is “prone to doubt.” Meaning, people naturally think quickly because they need a reason and so they do not have time to question their explanation. However, Kahneman neglects to mention that fast thinking roots itself in the fear of uncertainty. Kahneman begins his essay by describing his experience in evaluating

Technology has allowed us to create systems that could do tasks first at a faster rate than at a faster rate than humans. For example, when the stopwatch was created, a factory manager, Frederick Winslow Taylor, used the stopwatch to time all of his workers and how long the process took to manufacture an item in the assembly line. Using this information, he maximized his output by putting workers in their optimal position, running strict time, and changing the order of steps to create the final product. All though his workers complained, it was very successful. Now, instead of workers on the belt, it is all automated and extremely efficient (Carr, 6). In addition to factory process, it has become a common action to multi-task: whether that be listening to music and doing homework to running on a treadmill while channel surfing. Ms. Bates explains how she couldn’t spend 55 minutes on the elliptical machine without “lots of things to do.” “I switch constantly,” she said. “I can’t stand commercials. I have to flip around unless I’m watching ‘Project Runway’ or something I’m really into” (Ritchel 4). This mentality, both inside and outside the office, is from a desire to do numerous things at once which is not good for our brains; not as much effort is put into one task so it’s nearly impossible to get the best results. There are situations where I find myself listening and watching

The article “Is Tiger Woods Loss Averse? Persistent Bias in the Face of Experience, Competition, and High Stakes” is analyzed which investigate the existence of behavioral bias in a high stake, competitive setting involving experienced agents. It portrays Deming’s System of Profound Knowledge by complying with its four parts. The complete endeavor provides a practical setting to learn decision theory.

We have been taught to stop and carefully consider all the options/factors involved before making an important decision. But in Blink, Malcolm Gladwell finds that in complex situations, our initial two-second judgments, our blink moments, are often more accurate than judgments derived from lengthy, painstaking analysis. Although Gladwell is careful to explore situations where two-second judgments fail, the most interesting scenarios are where rapid cognition succeeds. It contradicts reason to think that a two-second judgment could be more accurate than a carefully made analysis, but in many cases it is.

C. (1988). Outcome bias in decision evaluation. Journal of Personality and Social Psychology, 54, 569-579.

This essay will be discussing one particular cognitive process: the memory by evaluating two models, which are the Multi store model introduced by Atkinson and Shiffrin in 1968 and the Working memory model by Baddeley and Hitch in 1974.

Challenges are presented to people on the daily basis. What to eat, drink, where they have to go, who they need to see, and etc... These things all impact the decision making process and the decisions made. In financial decision making, highly successful people do not make investment decisions based on past sunk outcomes, rather by examining choices with no regard for past experiences; this approach conflicts with what one may expect. In addition to past experiences, there are several cognitive biases that influence decision making.

With attention to the previous information given, the principle of risk-return tradeoff is based on the thought that individuals are opposed to taking risk, meaning individuals would prefer to get a certain return on their investment rather than risking and getting an uncertain return. (Titman, Keown, & Martin, 2014) This principle tells us that investors will receive higher returns for taking on a bigger risk however; a challenge often seen in investors is how to calculate the tradeoff between risks and return with riskier investments. A higher expected rate of return is not always a higher actual return.

Loss aversion is the tendency for people to fear loss. The authors explain that this fear of loss can lead to unpredictable and often ruinous actions. It is shown that as the potential for loss increases, the stronger this force becomes. For example, many individuals encounter loss aversion when buying and selling stocks. During the Great Recession in the late 2000s, many stockholders experienced their stocks drastically drop in value. They feared if they sold their stocks, it would result in a tremendous loss of money. This fear of loss influenced many stockholders to hold on to their stocks hoping for them to rise back to their original value. Many stocks never increased in value after this incident. As a result, countless stockholders lost an immense amount of money. Loss aversion is an extremely strong force, however, it can be minimized by focusing on the big picture rather than short term consequences. If these stockholders had looked at the big picture and focused on studying the true value of each stock, they would have been able to minimize the amount of loss they would have to suffer.

Prospect theory is an important alternative descriptive theory for decision-making under unreliable situation (Kahneman and Tversky 1979), which includes real life selection and psychological analysis between choices that involve risk. Prospect theory, which efforts to explain individual make decisions between risky replacements based on the value of potential gains and losses (Wakker 2010), advanced from expected utility theory, which explains that investors want to maximize expected utility of wealth when unclearly situations (Blavatskyy 2007). According to Kahneman and Tversky (1992), more recent researches perceived nonlinear preferences in choices that do not involve definite events in prospective theory. The concept of framing effect refers description invariances (Kahneman and Tversky 1992). To be specific, individual always makes the same decision in identical choice conditions. Also, decision makers have tendency to

This distinctive book called, “Thinking, Fast and Slow” by Daniel Kahneman, is one of very few exquisite readings I’ve completed so far. Daniel Kahneman is a psychologist in Princeton University, and due to his research, he won a Nobel Prize in 2002 in economics. In the beginning of his book, he speaks of our cognitive System 1 and System 2 ways of thinking. System 1 generates feelings, impressions, and memory. It is very instinctive, automatic, and is considered quick thinking. System 2 on the other hand, is alert during complex problem solving, while dealing with facts and knowledge, and is attentive while working with difficult calculations. For example, a problem such as 24 x 13, this takes more time and knowledge to figure out (System 2), rather then recognizing an emotion from face expressions (System 1). When System 1 is strained, your System 2 steps in to help you process through that specific instant. Now aside from the psychological portion of this book, Mr. Kahneman divulges about a consolidated economic analysis with elemental intuitions from the psychological perspective; such as, luck and skill, overconfidence, risks in the stock market, factors of success and the decision making process. This book is overall concluded with the understanding of behavioral economics, which is the social and cognitive components on economic decisions that are defined by individuals and have consequences that reflect from making those decisions and taking those risks.

A good portion of part 1 is spent telling us about the two systems, system-1 and system-2. System-1 operates automatically and quickly with no effort applied to it. While system-2, allocates attention to effortful mental computation.