On Daniel Kahneman, Systems of Thinking and Knowledge SharingIntroduction

Preface After Keynes and The Economic Consequences of Peace, I have become a great fan of two Nobel Laureates in Economics: Ronald Henry Coase (awarded 1991) and Daniel Kahneman (awarded in 2002). Coase in a 1994 publication, Essays on Economics and Economists, gave me the foundation for understanding the economics of services and the picoeconomic transactions of the Internet. It was Das Kapital of Marx that first informed me of the nature of commodities as the source of great wealth. When teaching a course in Data Communications to graduate students in 1996, it all came together for me that the Internet would be the locale of new wealth building though services as commodities. Indeed, we are seeing this come to pass today with the advent, acceptance and availability of Mobile Access and Cloud Computing. But I wasnt satisfied that the Adam Smiths Rational Man of Wealth of Nations really operated all the time. Marx gave me Greedy Man, Smith, Rational Man, and Coase, Efficient Man. But there was still that confounding aspect of irrational and unpredictable actions when Greed, Rationality or Efficiency didnt explain economic actions. Kahneman gave me Fallible Man. Daniel Kahneman received his prize for addressing the irrational side of economics and other decision making processes. The ideas are principally in his 1974 Science article with Amos Tversky, Judgment under Uncertainty: Heuristics and Biases. I was an avid reader of Science in the 60s and 70s and this article caught my attention. Into extreme rationality at the time and subject to his principle fallacy of overconfidence in what I knew, I thought it to be interesting, but not critical knowledge. Fortunately, it lay dormant, not dead, in my consciousness for almost 30 years until 1999-2004 considering how to integrate technology into solutions to support the retail marketing and selling of financial services. Marketing is the ultimate applied behavioral science. It was Larry Huston in R&D at Proctor and Gamble, who enlightened me on the Brand Cycle at a November 2000 Wharton Conference. Below is a picture of what he taught me (it is annotated with my current work on Metrics Tabloids which I will address later in essays on Knowledge Distribution):

Copyright 2011 David M. Sherr david@NewGlobalEnterprises.Net

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On Daniel Kahneman, Systems of Thinking and Knowledge SharingIntroduction

The above Brand Cycle separates the Experiences of Usage (how did it look, sound, feel, smell, taste) and Memory Reconstruction (what I remember about the experience of use). This brings us to a February 2010 TED lecture by Kahneman on the psychology of that separation (viewed by me in July 2011): http://www.ted.com/talks/daniel_kahneman_the_riddle_of_experience_vs_memory.html In 20 captivating minutes, Kahneman discusses the riddle of why the experience is different from the memory of the experience. He tied it to a 2009 study of the relationship of Income and Happiness in the US. This study showed a direct relationship between Happiness and Income up to about $65,000 per year. At that point, the line flattens. I contend this turning is the point when greed exceeds need. But that is a topic for another time with multiple bourbons. In September 2011, I was conversing on money in Google+ with a good friend and colleague of 10 years, Mark Raaberg. He pointed me to an article by British anthropologist and political economist David Graeber on debt and how money does not necessarily emerge from barter economies: http://www.nakedcapitalism.com/2011/09/david-graeber-on-the-invention-of-money-%E2%80%93notes-on-sex-adventure-monomaniacal-sociopathy-and-the-true-function-of-economics.html This led me directly to order Graebers then forthcoming book, Debt, The First 5,000 Years, from Amazon. In their omniscience, Amazon suggested that I might also like Thinking, Fast and Slow, Farrar, Strauss, Giroux, NYC 2011 by Daniel Kahneman. Somehow Amazon knows I like Economics (duh!) and that another then forthcoming book by no less than a Nobel Laureate would interest me. (Perhaps they also had my Web interactions with TED.com last summer when I watched Kahnemans talk described above.) Additionally, I saved on shipping and received a pre-order discount if I bought both. As a crypto-Luddite, I love hardcover books. And so I did. They both arrived end of October presenting the decision, which to read first?

I choose to read Kahneman first because his subject matter should be useful in a current corporate consulting engagement where I am helping create architecture and implementing technology for knowledge sharing. With knowledge sharing, the concept of Expert is central. A key question is who is an Expert? Second, how are they found? On a tertiary, but most important note, how is Expertise demonstrated?

In a Nov 5, 2011 review in the Financial Times by William Easterly, Dept of Economics NYU (http://www.ft.com/cms/s/2/15bb6522-04ac-11e1-91d9-00144feabdc0.html#axzz1dRgbQiTe) he opens with briefly, declaring There are many books on human rationality and irrationality, but only one masterpiece. That masterpiece is Daniel Kahnemans, Thinking, Fast and Slow.

Copyright 2011 David M. Sherr david@NewGlobalEnterprises.Net

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On Daniel Kahneman, Systems of Thinking and Knowledge SharingIntroduction

And later in his review confirming its importance to Knowledge Sharing, Professor Easterly continues: [Kahnemans and Tverskys] answer is that expertise can be learnt by prolonged exposure to situations that are sufficiently regular to be predictable, and in which the expert gets quick and decisive feedback on whether he did the right or the wrong thing. Experts can thus train their unconscious pattern recognition mechanism to produce the right answer quickly. (Emphasis added)

Approach This is the first of 42 essays covering the sections of Thinking, Fast and Slow (TF&S as I will refer to it henceforth): Introduction, Parts I-V/38 Chapters, Conclusions and two Appendices. Each essay will begin with a summary of the TF&S section. Focus will then be on (1) a summary of Kahnemans points, and, (2) the applicability to knowledge sharing in a corporate setting. Perhaps these 42 sections of TF&S are Kahnemans detailed answer to the ultimate question of Life, the Universe and Everything of Douglas Adams classic sci-fi book. The ultimate question is still outstanding, Earth having incorrectly computed the Question: What is 8 X 7? I leave the general applicability of the knowledge contained in Kahnemans work to him and others far more capable and/or in possession of far more time than I. In reading Kahneman, there are many phrases and ideas that resonate strongly with this topic of Knowledge Sharing. I only hope that these essays can bring to the topic some enriched vocabulary as Professor Kahneman explains his aspirations in the Introduction of TF&S. Typically, I set a time limit for my efforts (time-boxing in business jargon). This is no exception. My goal is to finish by New Years Day 2012. As you can see this will average out to about one per day between now (11/17/11) and the New Year (6 weeks: 44 days with slack of 2 days, holidays and all. Wish me luck!) Alas, one week later after the first draft of this essay, as of November 20, 2011, I have produced two essaysthis and the one to follow. This chosen task will take me 18 not 6 weeks per paper at this rate of write one day, edit two days until mid-February 2012. Silly of me for not remembering the system is never usable until version 3.1. See how tripling the time (and doubling the money) of our gut estimate seems to hold true at this moment. One week of experience has provided much better information about my production rate, not capacity, in my producing two essays. Some future essay will include an update on this production rate. Thinking about it, it should become more or less automatically reported. The Calendar will objectively judge my finishing this Knowledge Sharing Quest by the chosen updated deadline. You be the judge of whether your vocabulary is enriched by these ideas. Copyright 2011 David M. Sherr david@NewGlobalEnterprises.Net 11/14/11-3

On Daniel Kahneman, Systems of Thinking and Knowledge SharingIntroduction

TF&S Introduction This is a book in five parts: I. Two Systems Elements of a two-system approach to judgment and choice; a language for thinking and talking about the mind Heuristics and Biases Expanded study of judgment heuristics; difficulty of statistical thinking; single threaded thoughts Overconfidence Excessive confidence in what we believe we know; the illusory certainty of hindsight Choices Prospect Theory: a model of choice; shaped by inconsequential features of choice problems Two Selves Experiencing Self, Remembering Self, avoiding unnecessary pain (The Wisdom)

II.

III.

IV.

V.

Fast Thinking (intuitive, emotional), called System, 1 is treated most deeply in the book but it is contrasted well with Slow Thinking (deliberate, logical), called System 2. System 2 is the subject of logicians, statisticians and mathematicians, while System 1 is the province of behavioral psychologists like Pavlov and Grover Norquist. Deliberation and logic have a longer history of study than behavioral and cognitive psychology. This is a strong candidate for likely reason that Tverskys & Kahnemans original 1974 Science article (reprinted as Appendix A) had such a dramatic impact on the scholarly and applied psychology, economics and business management communities. However, one could argue that Aesop was the first to codify behavioral and cognitive aspects of people in his book of fables just as Plato and Aristotle codified logical thought in their works. (That is the subject for yet more study, an interesting but untaken tangent. Perhaps we should develop a game called Knowledge Wars to monetize that story line.)

Kahneman does not offer a scholarly treatise, but a highly accessible and compelling work to be used to enrich the vocabulary around the corporate water cooler. He strives for a language for thinking and talking about the mind, a richer more precise language to discuss behavioral errors. He sees more informed discussions about how we think, how we know what we know, and, ultimately, about assessing risks and making decisions. This is the intersection with Knowledge Sharing and what makes Experts and Expertise in discoverable phenomena and the processes of discovery. It is refreshing to see humility in a person of great accomplishment AND recognition. The phrase I like to use is Its so hard to be humble when the mantle of greatness is thrust upon your shoulders so young.

Copyright 2011 David M. Sherr david@NewGlobalEnterprises.Net

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On Daniel Kahneman, Systems of Thinking and Knowledge SharingIntroduction

Kahneman attributes the success of his work to a 1969-79 close collaboration with Amos Tversky. Their collaboration culminated when their second co-authored paper was published (reprinted as Appendix B). He notes with a hint of sadness that having died in 1996, Tversky was not alive to surely share the 2002 Nobel Prize in Economics with him. They had many heated disagreements, but always infused with mutual respect and leavened with continual humor. He asserts that it is easier to persevere to complete in-depth studies when one is laughing frequently. It is probably a great formula for life in general. The Tversky-Kahneman collaboration recalls the Talmudic approach of a two-person study group, an intellectual marriage of sorts. As Kahneman recounts later in a discussion of fallacies in thinking, it is easier to see the mistakes and faults of others than of ourselves. I frequently note that the capacity for self-delusion is infinite. Kahneman calls it The Fallacy of belief in what is known. But he and Tversky used this Talmudic dyad to plumb the depths of these phenomena, exposing the basic aspects of how we overvalue the rightness of what we think we know. In a remarkably humble statement, he attributes their collaboration as instrumental to his self-discovery and self-critiquea process he proposes should be life-long. A few CEOs and Financial Masters of the Universe could benefit from this sage advice.

As a tease to delve further into his book, Kahneman offers three common examples of biases of intuition: 1. Resemblance as a pattern for Predictionstereotypes tend to dominate over actual statistics. When asked to predict whether a shy, quiet person is a librarian or a farmer, most pick librarian even though there are 10 times as many farmers as librarians. (I chose farmer because my father was a shy, quiet person who was a farmer. But I admit, librarian was right there for me as well.) 2. Fallacy of belief in what is known. We tend to overestimate what we know and underestimate the role of chance. Kahneman remarks A recurrent theme of this book is that luck plays a large role in every story of success (and bad luck in many stories of mediocre accomplishments as there is usually one single event that changes the course of an endeavor. I experienced such luck with two systems I built and tried to commercialize. Fabulous technical work, but languishing in commercial doldrums.)

Copyright 2011 David M. Sherr david@NewGlobalEnterprises.Net

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On Daniel Kahneman, Systems of Thinking and Knowledge SharingIntroduction

3. Substitution of one question with another that is easier to answer when solving a problem. He notes we do this without even noticing a substitution is made. (There is an old joke that describes this bias in an analogous way: Person 1 is looking feverishly on the ground under a street lamp. Person 2 happens along and asks, What happened? Person 1, I dropped my car key. Person 2 then begins to assist looking. After a while, Person 2 says, Where were you standing when you dropped your key? Person 1 looks up and points to a dark alley. Person 2, Then why are you looking here?? Person 1, Because this is where the light is!) System 1 Fast Thinking intuition and heuristics are far more influential than we recognize. This is because they are automatic and rarely make it to the left brain. And, if they make it, the result is returned too late for the action decision window. Rather than see the interest and judgment in the faults of others as negative, Kahneman regales in it saying that intelligent/informed/enlightened gossip is a key to self-criticism on the path to our own betterment as analysts and decision makers. He is quite egalitarian in his approach in believing we are all basically the same. I conclude with the old saw: we never learn from the mistakes of others. Kahneman takes great issue with that. We learn with effort. It permeates all his work.

Prefatory Note on Kahnemans Examples of Water Cooler Enriched Vocabulary At the end of each of his chapters, Kahneman offers a three to five statements that illustrate daily use of the new vocabulary the reader has acquired. They will be reproduced at the end of each essay to help seal the lesson learned. I bet you thought you were out of school.

Prefatory Note on Knowledge Sharing Oriented Commentary With most stories in the Torah, the interpretations of ideas and its concomitant text is called the Midrash of the great Rabbis throughout the ages. The commentary of the Midrash in volume is greater than 100 times more than the text of the Torah itself. For some of these individual essays on the sections of TF&S, due to the explications and relating to Knowledge Sharing, an essay may exceed the textual volume of the subject section. In short, I may be verbose. Hopefully, it wont be on the scale of the Midrash. Additionally, the conceit of these essays per Knowledge Sharing for a corporation, I follow the pathetic fallacy of the Supreme Courts Citizens United decision. If Corporations are people, then I can use Kahnemans work on systems of thinking to model Information Processing and Knowledge Sharing for Information Technology Systems. It is in his words, a useful fiction.

Copyright 2011 David M. Sherr david@NewGlobalEnterprises.Net

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