Reaction Paper on Decision Making Text Bok

2115 words 9 pages
Reaction Paper
Thinking, Fast and Slow 2011 a book by Daniel Kahneman

Submitted in partial fulfillment of the requirements
For Master of Business Administration Degree
Judgment in Managerial Decision Thinking

The secrets of the human brain: the two mechanisms that control our lives
Thinking, Fast and Slow is a 2011 book by Nobel Memorial Prize winner in Economics Daniel Kahneman which summarizes research that he conducted over decades, often in collaboration with Amos Tversky. It covers all three phases of his career: his early days working on cognitive bias, his work on prospect theory, and his later work on happiness.

The book's central thesis is a dichotomy between two modes of thought: System 1 is fast, instinctive and emotional;
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Kahneman argues that optimism is the engine of capitalism, which is confirmed by the fact that the leaders, inventors and others that influence the life of a large number of people tend to be optimistic, taking risks being convinced that they will succeed in their attempt.
Another cognitive error identified by Kahneman is "the planning fallacy" - estimation error in planning. Psychologist encountered this problem for the first time in 1970, when the Ministry of Education of Israel asked him to design a manual and a study program on the topic of decision making. Kahneman has formed a team of specialists, among whom was an expert in the design of programs, and after a year of work colleagues asked them to estimate how long they thought it was not necessary. Most estimated project completion in about two years, with a margin of error of 6 months. Then, Kahneman asked the expert how programs such projects lasted on average. He explained that their average duration was 7-10 years, and 40% of them complete. Though he knew it, even the expert forecast a period of work for another 2 years. Finally, the project was completed in 8 years and in the meantime the Ministry of Education was not interested.
Another example of the error in planning comes from the U.S.. A survey of homeowners indicated that they expected to spend on average 18,500 dollars a kitchen refurbishment. Real average cost rises, but at

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