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Daniel Kahneman changed the way we think about thinking. But what do other thinkers think of him? | Science | The Observer

The first idea Danny gave me in Rome is that people do not perceive stand-alone objects, rather differences away from an anchor point. He said that it was not cultural: even the vision of babies was based on identifying variations. It was simply more economical for the brain to do so. Investors are more affected by changes in wealth than by wealth itself and they are very sensitive to the way information is presented to them; they are more unhappy if one tells them they have lost $10,000 (the variation) than if one informs them that their wealth is now $480,000 (the total). They just take a benchmark and react to variations from it. So one could make them react more rationally by modifying the anchor.

That small point was miraculous: upon my return to New York I forced the clients to write off the amount they were willing to lose during the year (like an insurance premium expensed at the beginning of the period). I then posted performance reports showing how much they “recovered”, ie, money not lost. It was a wonder pill: clients became excited as they treated the money not lost as if it were a profit.

The second – equally potent – point I learned is that people do not aggregate information properly. When the portfolio is composed of many trades, and the net performance is positive, though some trades were up while a few were down, the clients got excited when they only saw the net total, but not when they saw the details. A small loss in a trade more than compensated by gains elsewhere would turn them off, and cause them to interrupt my lunch for an urgent conversation.

I also learned that one can change people’s anchor to force them to have a realistic outlook on things. I am Lebanese and people keep bemoaning the relatively small tension in the wake of the Syrian civil war. But when I tell my mother to think of the turmoil that did not happen, her mood changes instantly.

via Daniel Kahneman changed the way we think about thinking. But what do other thinkers think of him? | Science | The Observer.

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