Thinking, Fast and Slow is a book written by Nobel prize winning economist Daniel Kahneman.
And in this book review, I’ll tell you what I liked about this book, and even why you might want to check out this great read for yourself. Sound good?
Thinking Fast and Slow covers a lot of ground, all of which is applicable to individuals looking to make better decisions in their lives. And investors and traders are especially encouraged to pay attention to the lessons in the book. Because…
Your unknowing misbehaviour in the markets could be costing you.
Thinking Fast and Slow Summary:
Thinking, Fast and Slow covers a lot of ground. The book is around 420 pages, so I’ll do my best to give you a concise summary about this discussion of prospect theory and behavioural economics.
Basically that means…
Thinking Fast and Slow looks at the different ways our brain works and how this impacts our decision making. It is a stark contrast with traditional economic utility theory that states individuals are rational actors at all times. The differences are fascinating.
And the first part of the book talks about two ‘parts’ of our brain: the fast system and slow system.
You might be able to realize this in your own life: We have a quick and intuitive part of our brain that provides intuitions and snap judgements. We also have a slower, more logical and rational part of our brain that we can engage for analytical reasoning. The book describes the different ways these two systems interact, and how they sometimes miscommunicate, causing us to make sub-optimal decisions.
There are tons of illusions, fallacies and irrational choices that we make, which this book explains in detail. For example, Thinking Fast and Slow is packed with short exercises and thought experiments to help you really experience these logical shortcomings. It’s really eye-opening to see for yourself.
Beyond that, Thinking Fast and Slow looks at some of the other discrepancies such as the difference between our experiencing and remembering selves. It turns out our brains play some unique tricks on remembering experiences vs. how we perceive things in the moment.
The book also discusses the differences between humans and econs, the latter of which are the ultra-rational agents used in traditional economics. This discussion is incredibly valuable and a great introduction to behavioural economics. But it’s not even the best part.
The Best Part of Thinking Fast and Slow:
A big theme of Thinking, Fast and Slow is that we are wired to make sub-optimal decisions, in some circumstances. But the bigger take-home lessons is that it’s incredibly hard to catch yourself in the moment making these poor decisions. We’re not as clever as we think we are.
And for me, I really enjoyed this honest approach. It would have been easy for this nobel-prize winning author to come across as condescending or smug. But instead, he freely admits that he still makes mistakes of reasoning and has trouble catching himself. This humbleness is refreshing.
This theme throughout the book really makes you feel like you’re working with a trusted advisor who will show you a more enlightened way forward. The unfortunate reality is that it would take a lifetime of mindfulness , and even then, perfect decision making would be impossible. But…
Striving to spot shortcomings in our logic, and fallacies in our reasoning (both in ourselves and those we care about) is a worthy undertaking. This is especially true if you are working in financial markets.
Thinking Fast and Slow For Traders and Investors:
Thinking, Fast and Slow is a great book for traders and investors. That’s because a lot of the logical illusions described in this book are applicable to financial markets. For example…
The book talks about subjects like thinking in probabilities and the role of chance in gambles and how our brains are not well-squared to deal with these types of data.
The book also talks about a “disposition effect” and how our brains are wired to avoid selling losers, and instead cut our losses short by selling winners. And that’s just the tip of the iceberg.
There are numerous passages of this book that are can’t-miss reading for any serious investor hoping to protect themselves, from themselves.
Thinking Fast and Slow The Final Word:
Whether you’re an experienced investor looking to improve your edge, or just interested in making better life and business decisions, Thinking Fast and Slow is the right book for you. It’s an entertaining, enjoyable and educational read. What more could you ask for?
That’s why I recommend buying a copy of Thinking, Fast and Slow on Amazon. Of course, if you’re still not convinced, I encourage you to check out the video book review below to get even more information on this great book.