KAHNEMAN: That depends on the nature of the decision, the individuals, and the groups. But I strongly believe that both individuals and groups need mechanisms to review how their decisions are made. This is particularly important for organizations that have to make many significant decisions in a short amount of time.
S+B: How much interaction have you had with business leaders about this? Do you get senior executives asking, Look, we make a lot of decisions, we have to assess risk. What insights can you give us into how to do better risk assessment as individuals and as groups? Are there ways for us to become aware of our biases, either by setting up checklists or learning how to frame things better?
KAHNEMAN: I’m very impressed, actually, by the combination of curiosity and resistance that I encounter. The thing that astonishes me when I talk to businesspeople in the context of decision analysis is that you have an organization that’s making lots of decisions and they’re not keeping track. They’re not trying to learn from their own mistakes; they’re not investing the smallest amount in trying to actually figure out what they’ve done wrong. And that’s not an accident: They don’t want to know.
So there is a lot of curiosity, and I get invited to give lots of talks. But the idea that you might want to appoint somebody to keep statistics on the decisions that you made and a few years later evaluate the biases, the errors, the forecasts that were wrong, the factors that were misjudged, in order to make the process more rational — they won’t want to do it.
S+B: Are people introspection-averse, or are they risk-averse? You’re a psychologist; you say your unit of analysis is the individual. Why don’t individuals want to know?
People look at mirrors.
KAHNEMAN: But when they have made a decision, people don’t even keep track of having made the decision or forecast. I mean, the thing that is absolutely the most striking is how seldom people change their minds. First, we’re not aware of changing our minds even when we do change our minds. And most people, after they change their minds, reconstruct their past opinion — they believe they always thought that. People underestimate the amount to which their minds have changed. Now in addition, people in general, when they have been persuaded of something, they think they always thought that. There’s very good research on that.
S+B: We’ve just lived through one of the biggest bubbles in history. We both know people who said, “I put money in dot-coms or telecoms at their peak. What was I thinking?”
KAHNEMAN: Oh, many people will admit that they made a mistake.
But that doesn’t mean that they’ve changed their mind about anything in particular. It doesn’t mean that they are now able to avoid that mistake.
S+B: So your bet, based on your study of how individuals and groups make decisions, is that the stock market bust is not going to fundamentally change how people think about risk.
KAHNEMAN: For a long time it’s going to have the effect of people getting burned by a stove. There’s going to be an effect at the emotional level, and it could last for a while.
S+B: But their mind hasn’t changed. So you think it’s an emotional phenomenon, it’s a System 1?
KAHNEMAN: I think that is entirely based on emotion.
S+B: Do we want to use Freudian, self-destructive explanations for why people rely on flawed intuitions in making decisions, rather than on their statistical expertise?
KAHNEMAN: Oh, no, God forbid!