Kahneman today. And I just want to give you a brief background on his outstanding career.

He started in 1954 received his bachelors in experimental psychology and mathematics

from the Hebrew University in Jerusalem. In 1961, he was awarded his Ph.D. from University

of California Berkeley right across the bay in Experimental Psychology. In 1979, he and

his coauthor Amos Tversky published their seminal paper on Prospect Theory which started

to change the way people reframed the argument around gains, losses, and decision-making

under uncertainty. Several years later in 2002, Professor Kahneman was awarded the Nobel

Prize largely on the work of Prospect Theory of. And Nobel Prize isn't always impressive;

his perhaps more so because there isn't a Nobel Prize in psychology. He had to win his

Nobel Prize in economics. And as far as I know, there's only one other person, one other

psychologist, who's won a Nobel Prize and that's Ivan Pavlov. He may be a physiologist,

we could argue about that. Years later, in 2007, Psychologist tried to reclaim Professor

Kahneman as one of their own when the American Psychological Association awarded him Lifetime

Distinguished Contribution Award. And today he is a Senior Scholar at the Woodrow Wilson

School of Public and International Affairs at Princeton University and he's here to talk

about his new book Thinking Fast and Slow. Now Google's mission which we all know is

to take the world's information and to make it more useful and universally accessible.

And all information, all knowledge, is important, but I think some again is more important than

others. Because the information that he'll present today I think it's very personal;

it's about each of us. And, if you'll listen carefully it's going to change the way you

think about yourself and the world around you. So please join me in welcoming Professor

Kahneman to Google.

[Applause]

>> Kahneman: Thank you. Well, I think intuition has been discussed a lot in recent years and

I'll be talking about intuition. There are two camps in this discussion naturally there

is the pro and the con. And of course, many people here will have read Malcolm Gladwell

Blink which although it's not unconditional defense of intuition, it certainly gave people

the impression that sometimes we magically know things without knowing why we know them.

Within the discipline of psychology and the decision making there is a group and it is

headed by a very interesting figure called Gary Kline who wrote a book that I recommend.

Its Sources of Power is one of his books that I would recommend the most warmly. And they

are great believers in expert intuition. The other side there are skeptics about intuition

in general and including expert intuition. And I have long been counted as one of the

skeptics because my early work with Amos Tversky was about intuitive errors and flaws and biases

of intuitive thinking. Today you find that discussion in many places and for example

in medicine among the popular writers; two writers both of whom write for the New Yorker,

Jerome Groopman and Atul Gawande. They clearly differ. Atul Gawande is in favor of formal

systems, very skeptical about human judgment and wanting to prove all the time and Jerome

Groopman being in fact, although he doesn't quite admit he really likes good old fashioned

medical intuition. Of course he likes physicians well-educated. But he doesn't like formal

system and the issue in medicine is "What are the role of evidence based medicine and

how do you allocate that with the function of intuition?" The background actually, part of the background for what

I'll talk about today is a strange collaboration in which I engaged with about eight years

with Gary Klein, whom I mentioned. He is a guru of a group of people who really, I wouldn't

say they despise what I do but they certainly don't like what I do because they think that

the emphasis and biases of judgment has drawn an unjustly unfavorable picture of the human

mind. And by and large I am inclined to agree. Seven or eight years ago I invited him and

we worked together for a number of years trying to figure out where is the boundary? Where

is intuition marvelous and where is it flawed? And I think we can tell. And we wrote a paper

at the end of six or seven years with a lot of vicissitudes that we went through since

we basically don't agree. We wrote a paper the title of which was A Failure to Disagree,

because on the substance I think we know and we both agree where you can trust intuition

and where you cannot. Emotionally we haven't changed. He still hates the biases and doesn't

think that errors of experts are very funny and I think that errors of experts are quite

funny [laughter] so that's a difference right there. There are two modes of thinking that

all of us are familiar with. And there is one mode, one way for thoughts that come to

mind and listen to this. You know about this lady that she's I think adjust as quickly

as you know her hair is dark. And it's interesting to dwell a bit about this. It is this is not

something that the judgment that she is angry, the impression that she is angry. Doesn't

feel like something you did. It feels like something that happens. It happens to me.

We have the basic experience is a passive experience in those judgments. And that is

true of perception, when we see the world we don't decide to see it. It is true of impression.

And it is true in general what we call intuitive thinking. It just happens. It comes from somewhere.

And we are not the author of it. Now, there is another way that thoughts come to mind

and here I suppose essentially nothing came to your mind, but the answer is 408. To produce

the 408, requires a completely different kind of operation. You have to retrieve the program

that you learned in school. The program consists of steps. You have to go through the steps.

You've got to pay attention successively to partial products and so on. And keep things

in mind and keep the whole program in mind. This is how it works. This is something that

you do. It is not something that happens to you. And there are many indications that this

is how it works. One is that Physiology indicates and this is how it works: pupil dilates. This

is something that I studies many, many years ago that people really on a program like that

if you're on a problem like that if you're going to do it in your head, your pupil will

dilate. The area will increase by about 50% as soon as you engage in that. And it will

stay dilated as long as you're working and it will sort of collapse back to normal size

either when you quit or when you find the answer. So this is another way thoughts come

to mind. And this is definitely not the intuitive way. Here we are we feel a sense of urgency.

We feel something deliberate is happening and a very important aspect of it this is

effortful and what psychologists mean by effort is basically, if you want the quick introduction

to what effort is, this is something you cannot do while making a left turn into traffic.

You cannot do it and you shouldn't try. And the reason is that there is limited capacity

to exert effort. And if you are engaged that capacity or those resources at one task less

is available for another task. Now, there is another function of System 2. And here

I'm going to tell you a riddle. Most of you are familiar with it. A bat and a ball together

costs 1.10. The bat costs more than the ball. Of course how much does the ball cost? How

many people know this riddle by the way? Oh, okay. So it's still usable. The point about

this riddle is that the number came to your mind. And the number is ten cents. And everybody

just, I think. Maybe here they're exception, very few exceptions. People confess that the

number ten cents immediately came to mind. Now, it's wrong. Ten cents and dollar 10 is

a dollar 20. The solution is five cents. What is interesting here is that at Princeton,

at MIT at Harvard and I don't know about Stanford or CalTech about 50% of students asked this

question of undergraduates say ten cents. And we learn something very interesting when

somebody says ten cents. We learn that they didn't check because if they had checked,

they wouldn't say ten cents. So, there is a sense of confidence that people have that

these people in particular have and it brings us to another function of what I'll call System

2. System 1 is the intuitive one; they perform those automatic and activities and System

2 is the effortful one the one that the deliberate one. And the reason that I classify this as

System 2 operation is that self-control and controlling your attention and deliberate

exertion of effort are impaired when by other activities. So, if for example, a trivial

example, if somebody is asked to retain seven digits in their head and you then give them

a choice between chocolate cake, sinful chocolate cake and virtuous fruit salad they're more

likely to choose the chocolate cake than they would if they didn't have seven digits in

their head. It takes effort to control your impulses even such mild impulses as a preference

for chocolate cake. So you should be aware of that difference between System 1 operations, the automatic ones and

System 2 operations, the deliberate ones, it comes very clearly when in driving. So

driving is a skill. And any skilled activity measure of skill is that things begin to happen

automatically. So you can drive and conduct a conversation. You cannot make a left turn

into traffic, but by and large, we can drive and talk. So driving is largely automatic.

Braking, when there is any sign of danger, braking is completely automatic. That is,

you can notice while you're braking, but you first respond so that the response is immediate,

it is fully automatic. Now, in some places, not here where people drive in snow or ice,

they learn about skids. And then, occasionally, you'll find yourself as a driver in a skid.

And then System 2 will be mobilized because in a skid you're not supposed to do anything

that comes naturally to you. You shouldn't brake and you shouldn't steer away from the

skid. You should leave the brakes alone and steer into the skid, completely non-intuitive.

Now, when people have a lot of practice with skids that too becomes automatic. So one thing

that we can tell about System 1 and System 2 those two types of operations, is some of

the basic innate operations, functions that we have such as having emotional reactions

to things, all this is System 1. We don't choose to do it. It just happens to us. But

also System 1 is where skill is. That is when we get to be skilled at something it becomes

automatic and it demands your resources and we get to be very good at it. Now, the issue

of intuition and here I'm not sure, but I suspect that Malcolm Gladwell really did us

a disservice by giving us a sense there is magic to intuition. There really is no magic

at all and we should understand how it works. Intuition and Herbert Simon who was Psychologist

then and economist and a political scientist Nobel Laureate, Herbert Simon gave a very

good definition about what intuition is. It is simply recognition. There is really no

difference between the physician recognizing a disease, you know, a particular disease

from a facial expression or something and a little child learning, pointing to something

and saying doggie. The little child has no idea what the clues are but he just said.

He just knows this is dog without knowing why he knows. And once you think about it

this way, this really demystifies intuition to a very considerable extent. And it also

leads you to sort of a solution to the problem Gary Klein and I were trying to solve. When

can you trust intuition and when can't you? And then it becomes an issue of is the world

regular enough so that you can learn to recognize things? Or and then did that particular individual

have an opportunity to learn the regularities of the world? And so, the world of chess players

is highly regular. And statistically, the world of poker players is very regular. So

there is an element of chance, but there are rules and the mind is so set that if there

are rules in the environment and we're exposed to them for a long time, and we get immediate

feedback on what is right and wrong, or fairly immediate feedback, we would acquire those

rules. So all of us have expert intuition even if we are not physicians and we're not

master chess players. I recognize my wife's mood from one word on the telephone. You know,

most of you can do that. There's people that you know very well. All of us recognize dangerous

driver on the next lane. And you know we get cues and we don't necessarily know what is

the cue but this person is driving erratically and could do something dangerous. And this

is a lot of reinforced practice and we're very good at that. We can learn about those,

there are differences. Among experts, among professionals, in the level of expertise that

they have and they depend in the level of intuitive expertise that they can develop.

So for example, compare anesthesiologists to radiologists. Anesthesiologists get very

good feedback, an immediate feedback whenever they do anything wrong. You know they have

those measurements in real time. Radiologists get really miserable feedback about whether

they're right or wrong. So you could expect an anesthesiologist to develop intuition much

more than you would expect radiologist to develop intuition. And so, that is part of

the answer about intuitive expertise. We don't need to disagree about that because we know

pretty much when intuitive expertise is likely to develop. And as I said, we also that means

that intuitive expertise is not going to develop in a chaotic universe or in a chaotic world.

So for example, I personally do not believe that that's stopped because people pick stocks

to invest in can develop intuition because simply the market takes care of it. There

isn't enough regularity in what's going to happen to prices for intuitions to develop.

We also know about political forecasters when they forecast long-term, they are really no

better than a dart-throwing monkey. And they are certainly not better than the average

reader of the New York Times. Intuitions and the reason it's not the pundit's fault. And

that research has been done with pundits and CIA analysts and regional experts. It is really

not their fault that they cannot predict the long range future 10 or 15 years. They are

quite good at short-term predictions. They are really not good at all in long-term predictions.

It's not their fault. It's the fault of the world. The world is probably not predictable.

And if the world is not predictable, then you are not going to predict it. When there

are marginal situations where there is some predictability but poor formulas do better

than individuals. That is the domain where formulas beat individuals regularly is a domain

of fairly low predictability. Because when there are weak cues, people are not very good

at picking them up and are not good at using them consistently. But formulas can be generated

on the basis of experience and they will do a better job than individual judgment. Okay.

Now, I've introduced you to System 1 and System 2 and I've told you something about skill

and about skill in System 1. Now I'd like to point out something that we sometimes have

intuitions and that applies to political forecasters and to stock pickers and to all of us. Quite

frequently we have intuitions that are false. And they come up and come to mind and they

are subjectively undistinguishable from expert intuitions. So I'm now talking of people who

have intuitions that are not based on expertise. And they come. They're System 1 in the sense

that they are effortless and automatic. And where do they come from? And that is what

I'm going to try to illuminate, shed some light on in the rest of the talk. So I want

to introduce you to System 1. And first of all, let me get one thing clear because I

might forget. I use System 1 and System 2 those terms and very shocking terms in my