Conglomerate Blog: Business, Law, Economics & Society

Many thanks to Eric and fellow Glom bloggers for this real option to contribute some guest posts. I’ll focus in these posts on how these three areas relate to business, law, economics, and society:

1) Recent empirical and experimental research by economists, psychologists, and others about happiness, also known as SWB (Subjective Well-Being).

2) Popular culture portrayals of the great recession, e.g. the movie Margin Call,

(Note: in the interests of full disclosure this film does not involve any margin calls).

3) Ethics and professionalism in business and law.

First, today’s post is an enthusiastic and whole-hearted endorsement of a new book from 2002 economics Nobel Laureate, Danny Kahneman: Thinking, Fast and Slow, just published last Tuesday.

Kahneman's book is a fascinating intellectual memoir by the co-creator (with his frequent co-author Amos Tversky) of prospect theory, pioneer of much of behavioral economics and behavioral finance, and most recently a leader in SWB research. His book provides a delicious buffet of food for thought about thinking from a Jedi master in how to think appropriately. As with all great books, this one is not only informative, but also transformative.

Kahneman is of course familiar or should be so to law professors because many scholars in behavioral law and economics have widely applied and cited Kahneman’s fundamental research on cognitive biases and heuristics in order to intellectually justify increased regulatory intervention. It is on the basis of this research that such well-known legal scholars as Chris Guthrie, Samuel Issacharoff, Christine Jolls, Jeff Rachlinksi, and Cass Sunstein among others advocate various types of paternalism (including asymmetric, libertarian, and weak).

The objective that Kahneman states and succeeds at in his book is to provide a more accurate, richer language (of diagnostic labels much like those from the scenes of differential diagnosis in the television series House)

to help all of us better identify, understand, and improve poor choice and judgment by others and ourselves. Recall the scene from the film, Indiana Jones and the Last Crusade, in which after a Nazi ages to death in mere seconds, the holy grail knight observes: “He chose … poorly.”

After a delightful personal history of science introduction, Kahneman divides his book into these five parts. Part 1 offers insights on two systems of thinking, processing information, judging, and choosing. System one type of reasoning is affective, associative, automatic, fast, habitual, heuristic-based, holistic, intuitive, and unconscious. System two kind of reasoning is analytical, cognitive, conscious, controlled, deliberative, effortful, logical, rule-based, and slow. Part 2 explains why people are able to think analogically, associatively, causally, and metaphorically, but have difficulties in thinking statistically. Part 3 analyzes overconfidence in understanding events and underestimation of chance’s role in explaining things. Part 4 is an engagement of and essential challenge to rationality assumptions classical economics a la the University of Chicago school privileges. Part 5 introduces a riddle of two selves with divergent goals: an experiencing self and a remembering self. There is a final chapter that investigates the consequences of the three dichotomies that the book detailed: system 1 versus system 2, behavioral versus classical economic views of agent rationality, and our experiences versus memories. Finally, two seminal articles by Kahneman and Tversky are reproduced in appendices.

Analyzing the many implications of this book for business and law could easily take several fun lifetimes. In a later post, I’ll focus on when law and policy should care more about our experiences than our memories of them.

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Many thanks to Eric and fellow Glom bloggers for this real option to contribute some guest posts. I’ll focus in these posts on how these three areas relate to business, law, economics, and society:

1) Recent empirical and experimental research by economists, psychologists, and others about happiness, also known as SWB (Subjective Well-Being).

2) Popular culture portrayals of the great recession, e.g. the movie Margin Call,

(Note: in the interests of full disclosure this film does not involve any margin calls).

3) Ethics and professionalism in business and law.

First, today’s post is an enthusiastic and whole-hearted endorsement of a new book from 2002 economics Nobel Laureate, Danny Kahneman: Thinking, Fast and Slow, just published last Tuesday.

Kahneman's book is a fascinating intellectual memoir by the co-creator (with his frequent co-author Amos Tversky) of prospect theory, pioneer of much of behavioral economics and behavioral finance, and most recently a leader in SWB research. His book provides a delicious buffet of food for thought about thinking from a Jedi master in how to think appropriately. As with all great books, this one is not only informative, but also transformative.

Kahneman is of course familiar or should be so to law professors because many scholars in behavioral law and economics have widely applied and cited Kahneman’s fundamental research on cognitive biases and heuristics in order to intellectually justify increased regulatory intervention. It is on the basis of this research that such well-known legal scholars as Chris Guthrie, Samuel Issacharoff, Christine Jolls, Jeff Rachlinksi, and Cass Sunstein among others advocate various types of paternalism (including asymmetric, libertarian, and weak).

The objective that Kahneman states and succeeds at in his book is to provide a more accurate, richer language (of diagnostic labels much like those from the scenes of differential diagnosis in the television series House)

to help all of us better identify, understand, and improve poor choice and judgment by others and ourselves. Recall the scene from the film, Indiana Jones and the Last Crusade, in which after a Nazi ages to death in mere seconds, the holy grail knight observes: “He chose … poorly.”

After a delightful personal history of science introduction, Kahneman divides his book into these five parts. Part 1 offers insights on two systems of thinking, processing information, judging, and choosing. System one type of reasoning is affective, associative, automatic, fast, habitual, heuristic-based, holistic, intuitive, and unconscious. System two kind of reasoning is analytical, cognitive, conscious, controlled, deliberative, effortful, logical, rule-based, and slow. Part 2 explains why people are able to think analogically, associatively, causally, and metaphorically, but have difficulties in thinking statistically. Part 3 analyzes overconfidence in understanding events and underestimation of chance’s role in explaining things. Part 4 is an engagement of and essential challenge to rationality assumptions classical economics a la the University of Chicago school privileges. Part 5 introduces a riddle of two selves with divergent goals: an experiencing self and a remembering self. There is a final chapter that investigates the consequences of the three dichotomies that the book detailed: system 1 versus system 2, behavioral versus classical economic views of agent rationality, and our experiences versus memories. Finally, two seminal articles by Kahneman and Tversky are reproduced in appendices.

Analyzing the many implications of this book for business and law could easily take several fun lifetimes. In a later post, I’ll focus on when law and policy should care more about our experiences than our memories of them.

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