Book Cover

Kahneman starts chapter 33 by contrasting the payout from two fictional court cases – one that occurs in a store a shopper normally goes to and the second In a store the shopper almost never commerces in. When the two outcomes were experimentally evaluated together neither evoked a different payout. When evaluated separately, the outcome was different. The effect of evaluating each incident separately allows System 1 thinking to use substitution and intensity matching to create an emotional scale. In the experiment, there was a higher payout for the incident that happened in the store they frequented less. Kahneman uses the term poignancy, closely related to regret, in order to describe the effect. This effect happens when people grant a higher value or more emotion to something that happens when they act out of the ordinary. The saying “ woulda, shoulda, coulda” sums the feeling up for this effect. The take away for this portion of the chapter is that comparisons between two outcomes create an environment that invokes System 2 thinking which reduces bais and allows clearer decision making. When selling a change program or an experiment, you need to step back and determine how to package the argument. Separating decisions allows attributes to come into play that would generate poignancy which favors the status quo (resist ideas that might cause failure for doing something outside the norm). Separating decisions that could be compared, opens the door to reversals.

Preference reversals occur when decision-makers separate joint decisions into separate decisions.  The separation causes attention to shift to a specific attribute of a situation rather. For instance, facing two decisions: 

  1. If a firm embraces an agile mindset they have a 75% chance of improving quality 10% or a 25% chance of increasing turnover 10%.
  2. If a firm embraces continuous process improvement and has a 95% chance of improving quality 1% and a 5% chance at increasing turnover 5%.

Looked at together, it would be very easy to take the safe bet. Separating the two decisions it would be easier to get a reversal. Who you ask, the order you ask and the options provided can very strongly influence the outcome. Preference reversal is one reason this is true. 

Categories, or more aptly stated, categorizing, is a useful tool for making comparisons more relevant. Kahneman uses the attribute and height, to drive this idea home. If we were comparing two people that were five feet tall are the people being compared tall or short. If one person was was five years old they would be tall while if the second was 25 years old they would be short. The category of age improves the side by side comparison. Categorization is not end-all, mixing categories can be problematic and decrease decision validity. Comparing an apple to a steak will just cause confusion and will invoke System 1 thinking.  

Broadly framing a decision (considering groups of decisions rather than one at a time) is a better process. However, Kahneman includes an important caution late in the chapter, “you should be wary of joint evaluation with someone who controls what you see and has a vested interest in what you choose.” 

Remember, if you do not have a favorite, dog-eared copy of Thinking, Fast and Slow, please buy a copy. Using the links in this blog entry helps support the blog and it’s alter-ego, The Software Process and Measurement Cast. Buy a copy on Amazon,  It’s time to get reading!

Remember we are in the process of choosing the next book in the Re-Read Saturday feature. We have approximately seven weeks left in the reading of Thinking Fast and Slow. We have four books that have been suggested (two I have not read, but should). Please vote for your two favorites in the poll below: 

The previous installment of Re-read Saturday is:

Week 32: Keeping Score 

Or start at the beginning with 

Week 1: Logistics and Introduction –