1. The knee-jerk reaction is to select answer C; we expect things to follow a proven pattern regardless of size. But size matters. A small sample size (i.e., the small hospital) will often contain extreme proportions, while a large sample size (i.e., the large hospital) will more likely reflect real-world distributions. The heuristic shown here can be used to understand some forms of prejudice—if you haven’t been exposed to a large number of people from a certain group, you’re more likely to have incorrect assumptions about them. When you do not account for the size of a sample, Kahneman and his colleague Amos Tversky say, you have used the “representativeness heuristic.”
2. If you answered anything but A (the correct response being precisely 30 percent), you have fallen victim to the representativeness heuristic again, despite having just read about it. When Kahneman and Tversky performed this experiment, they found that a large percentage of participants overestimated the likelihood that Jack was an engineer, even though mathematically, there was only a 30-in-100 chance of that being true. This proclivity for attaching ourselves to rich details, especially ones that we believe are typical of a certain kind of person (i.e., all engineers must spend every weekend doing math puzzles), is yet another shortcoming of the hyper-efficient System 1.
3. Regardless of how you answered, it is likely that your answer to question (a) is positively correlated to your answer to question (b)—that is, you rated your happiness higher if you had more dates and lower if you had fewer dates. However, when the order of these questions was reversed, as was done by two German researchers, people’s happiness became untethered from their dating life. This experiment demonstrates the brain’s deferral to System 1, the faster and easier of the two processes. When faced with an objective question (in this case, How many dates did you have last month?), followed by a subjective one (How happy are you these days?), people often simply carry over their answer for the first to the second. This heuristic is called substitution.
4. If you answered no, as most people do, consider the following question:
Imagine that you decide to see a play and you will pay $10 for the admission price of one ticket at the door. As you enter the theater, you discover that you have lost a $10 bill. Would you still pay $10 for a ticket to the play?
If you answered yes to this analogous scenario (as both result in the net loss of $10), it’s likely you fell victim to what Kahneman and Tversky call the “framing effect”: being swayed by the way in which questions are worded rather than responding just to their substance. When Kahneman and Tversky performed this experiment in 1981, they found that 46 percent of participants would pay for another ticket, while 88 percent of participants would purchase the ticket in the analogous example mentioned above. The framing effect is also used to explain the influence of positive and negative information on our decisions—for example, why consumers prefer to buy ground beef labeled 80 percent lean rather than 20 percent fat.
5. The results of this simple problem set, for which most participants answer A and then B, were used to develop the thesis that would make Kahneman and Tversky famous: prospect theory. In a 1979 paper, they documented a peculiar behavioral tendency: when people faced a gain, they became risk averse; when they faced a loss, they became risk seeking. As a result of their discovery, Kahneman and Tversky debunked Bernoulli’s utility theory, a cornerstone of economic thought since the 18th century. (Bernoulli first proponed that a person’s willingness to gamble a certain amount of money was a product of how that amount related to his overall wealth—that is, $1 million means more to a millionaire than it does to a billionaire.)
Along with playing a large role in Kahneman’s being awarded the Nobel Prize in 2002, the theory also spawned a new academic pursuit, the field of behavioral economics. Prospect theory, Michael Lewis writes, explains “why people are less likely to sell their houses and their stock portfolios in falling markets; why, most sensationally, professional golfers become better putters when they’re trying to save par (avoid losing a stroke) than when they’re trying to make a birdie (and gain a stroke).”
2. If you answered anything but A (the correct response being precisely 30 percent), you have fallen victim to the representativeness heuristic again, despite having just read about it. When Kahneman and Tversky performed this experiment, they found that a large percentage of participants overestimated the likelihood that Jack was an engineer, even though mathematically, there was only a 30-in-100 chance of that being true. This proclivity for attaching ourselves to rich details, especially ones that we believe are typical of a certain kind of person (i.e., all engineers must spend every weekend doing math puzzles), is yet another shortcoming of the hyper-efficient System 1.
3. Regardless of how you answered, it is likely that your answer to question (a) is positively correlated to your answer to question (b)—that is, you rated your happiness higher if you had more dates and lower if you had fewer dates. However, when the order of these questions was reversed, as was done by two German researchers, people’s happiness became untethered from their dating life. This experiment demonstrates the brain’s deferral to System 1, the faster and easier of the two processes. When faced with an objective question (in this case, How many dates did you have last month?), followed by a subjective one (How happy are you these days?), people often simply carry over their answer for the first to the second. This heuristic is called substitution.
4. If you answered no, as most people do, consider the following question:
Imagine that you decide to see a play and you will pay $10 for the admission price of one ticket at the door. As you enter the theater, you discover that you have lost a $10 bill. Would you still pay $10 for a ticket to the play?
If you answered yes to this analogous scenario (as both result in the net loss of $10), it’s likely you fell victim to what Kahneman and Tversky call the “framing effect”: being swayed by the way in which questions are worded rather than responding just to their substance. When Kahneman and Tversky performed this experiment in 1981, they found that 46 percent of participants would pay for another ticket, while 88 percent of participants would purchase the ticket in the analogous example mentioned above. The framing effect is also used to explain the influence of positive and negative information on our decisions—for example, why consumers prefer to buy ground beef labeled 80 percent lean rather than 20 percent fat.
5. The results of this simple problem set, for which most participants answer A and then B, were used to develop the thesis that would make Kahneman and Tversky famous: prospect theory. In a 1979 paper, they documented a peculiar behavioral tendency: when people faced a gain, they became risk averse; when they faced a loss, they became risk seeking. As a result of their discovery, Kahneman and Tversky debunked Bernoulli’s utility theory, a cornerstone of economic thought since the 18th century. (Bernoulli first proponed that a person’s willingness to gamble a certain amount of money was a product of how that amount related to his overall wealth—that is, $1 million means more to a millionaire than it does to a billionaire.)
Along with playing a large role in Kahneman’s being awarded the Nobel Prize in 2002, the theory also spawned a new academic pursuit, the field of behavioral economics. Prospect theory, Michael Lewis writes, explains “why people are less likely to sell their houses and their stock portfolios in falling markets; why, most sensationally, professional golfers become better putters when they’re trying to save par (avoid losing a stroke) than when they’re trying to make a birdie (and gain a stroke).”
