How cognitive illusions blind us to reason

Fun arti­cle by Daniel Kah­ne­man based on his new book,Think­ing, Fast and Slow.

How cog­ni­tive illu­sions blind us to rea­son (The Guardian):

Why do Wall Street traders have such faith in their pow­ers of pre­dic­tion, when their suc­cess is large­ly down to chance? Daniel Kah­ne­man explains. 

- “Look­ing back, the most strik­ing part of the sto­ry is that our knowl­edge of the gen­er­al rule that we could not pre­dict had no effect on our con­fi­dence in indi­vid­ual cas­es. We were reluc­tant to infer the par­tic­u­lar from the gen­er­al. Sub­jec­tive con­fi­dence in a judg­ment is not a rea­soned eval­u­a­tion of the prob­a­bil­i­ty that this judg­ment is cor­rect. Con­fi­dence is a feel­ing, which reflects the coher­ence of the infor­ma­tion and the cog­ni­tive ease of pro­cess­ing it. It is wise to take admis­sions of uncer­tain­ty seri­ous­ly, but dec­la­ra­tions of high con­fi­dence main­ly tell you that an indi­vid­ual has con­struct­ed a coher­ent sto­ry in his mind, not nec­es­sar­i­ly that the sto­ry is true.” …

- “The sub­jec­tive expe­ri­ence of traders is that they are mak­ing sen­si­ble edu­cat­ed guess­es in a sit­u­a­tion of great uncer­tain­ty. In high­ly effi­cient mar­kets, how­ev­er, edu­cat­ed guess­es are no more accu­rate than blind guesses.”

Relat­ed articles:

• Clas­sic inat­ten­tion­al blind­ness test
• Brain Teas­er: Con­sid­er Linda
• Your Trad­ing Brain: Expert or Novice