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Tag Archives: Daniel Kahneman

“Thinking, Fast and Slow”

“Unless there is an obvious reason to do otherwise, most of us passively accept decision problems as they are framed and therefore rarely have an opportunity to discover the extent to which our preferences are frame-bound rather than reality-bound.”

 “Thinking, Fast and Slow”, Daniel Kahneman

In “Thinking, Fast and Slow”, Daniel Kahneman talks about System 1 and System 2 thinking. Wikipedia describes them thus:

System 1: Fast, automatic, frequent, emotional, stereotypic, subconscious

System 2: Slow, effortful, infrequent, logical, calculating, conscious”

Kahneman goes on to make the point that often human beings make decisions quickly, then rather than thinking carefully about a hasty judgement, they use their System 2 thinking to justify their System 1 judgement. For example, Tony Abbott announces a policy to improve Aboriginal Health Services in remote areas. Instinctively, someone anti-Abbott says that it won’t work. After that, rather than look at the individual components of the policy, the support it has amongst indigenous leaders or any arguments for the merits of the scheme, the person’s System 2 thinking will keep finding ways to support the initial System 1 reaction.

This partially explains the Gillard Government’s inability to gain traction, and to receive support in areas where people would actually support the idea itself. It’s not totally about the inability of the Government to “sell its message”, or even the MSM’s bias. Of course, it doesn’t help when the first time people hear a proposal that it’s framed in negative terms, or that headline portrays a change in policy as a “broken promise” or a “backdown”.

Kahneman also talks about the “sunk costs fallacy”.  Again from Wikipedia, “In economics and business decision-making, a sunk cost is a retrospective (past) cost that has already been incurred and cannot be recovered. Sunk costs are sometimes contrasted with prospective costs, which are future costs that may be incurred or changed if an action is taken.” In simple terms, once you’ve invested time, money or energy into a course of action, it’s hard to simply say that’s it, I’m going to do something else. Rather than admit the car we’ve bought is a “lemon” and spending another couple of thousand getting something fixed, we might be best to just leave it where it is, and put that money towards taxis. Similarly, governments are reluctant to say, for example, that the ticketing system they’ve spent a billion developing is inefficient and that it’d be cheaper to make public transport free and pay people to ask for donations to keep the system running.

I can’t help but think about the notion of sunk costs in relation to coming election. As I suggested in a previous blog, some people seem to see elections solely in terms and winning and losing. It’s probably symptomatic of being one of the major parties. Smaller parties like the DLP, the Democrats and the Greens have always been more concerned with what they can achieve before and after elections because they know the won’t form government.

Both Liberal and Labor should be aware that they won’t keep winning elections. The issue for them shouldn’t be what will win the election, but what will they be able to achieve. How can they – in terms of the “sunk cost fallacy” – stop the other side undoing what they’ve done?

Should Gillard be twisting and turning in the hope of winning a few votes here and there, or should she accept that staying true to the things Labor want to achieve is the better way to go. They’ve let the Liberals set the agenda on asylum seeker policy only to find themselves unpopular with both sides of the debate.

The quote from “Thinking, Fast and Slow” at the top of the page talks about framing, and, of course, if Gillard has made any mistake, it’s been that they’ve allowed other people to frame the debate in the wrong terms. By constantly moving the focus forward to the next election, the question issue becomes about how to ensure a win, not about how to make best use of their time in government. When the dust settles, will Labor be saying we grabbed a few votes here and there with populist policies? Or will the say that in these six years, we managed to set in motion many things that Tony couldn’t unwind.

To take one example – most schools were happy with the money “wasted” on their school halls. Not even the Liberals have a policy of to knock them down.

Savings, savings, savings

Image from abc.net.au

Image from abc.net.au

“Human beings cannot comprehend very large or very small numbers. It would be useful for us to acknowledge that fact.”    Daniel Kahneman, Nobel prize-winning psychologist.

Numbers have always fascinated me. Or rather, I’ve always been fascinated by people’s inability to understand them. If that sounds arrogant and as though I seem to think I’m better than everyone else, so be it. That seems to be a way of making oneself popular these days. For the past few years, the Liberal Party have been saying that they’re just so awesome and that the current government is just a pack of losers, and that they should be government and that they were robbed. Strangely, if they were the team that lost a Grand Final nobody would be impressed by  their behaviour, but in politics, it seems to be a way to win people’s hearts and minds.

But I digress. Numbers. Really big ones. Like the budget deficit. It’s really, really big. It’s scarily big. Until you break it down. Then it just becomes mildly scary. Or as one News Limited paper told us last week, the total interest on the Government’s deficit with cost every working Australian about $5 a week. Or $250 a year. Mm, that’s about a day’s wage for some people, an hour’s wage for others, and if Gina gets her way, a year’s wage for anyone in her employ.

Of course, the figure that fascinates me today is the $75,000,000,000 dollars of savings the Liberals have identified over the next five years. That’s a lot. But the first thing that they’ll do, of course, is add to the bureaucracy. From the Liberal Website:


Commission of Audit 
For the 1st time in 16 years, we’ll immediately establish a Commission of Audit – to identify savings and efficiencies in all areas of government so we can start delivering real and sustainable budget surpluses into the future.

Mm! So they’ll spend money working out how to save money. Or to look at it another way, they’ll create a new bureaucracy that’ll work out how to get rid of the other bureaucracies.

Perhaps, the Liberal slogan could be: We guarantee that we’ll take more off you in tax than we’ll give back in services, because that’s what a surplus means!

Or

Over the past forty years, Labor have given you Medicare (bank), Superannuation, the NBN, the NDIS, and next they’re trying to implement Gonski. Compare that to our proudest achievement: the GST! And we promise we won’t put that up in our FIRST term of Government.

Or (to break down a really big number).

Over the next five years, we promise to take $15,000 off every Australian! Sorry, we promise to save $75 billion.

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