Thinking, Fast and Slow - Daniel Kahneman

hours, at what time will there be the most bidders looking at my auction? The answer: around
noon, when the number of bidders is large relative to the number of sellers. The sellers who
remember the competition and avoid prime time get higher prices. Uri Simonsohn, “eBay’s
Crowded Evenings: Competition Neglect in Market Entry Decisions,” Management Science 56
(2010): 1060–73.
“diagnosis antemortem”: Eta S. Berner and Mark L. Graber, “Overconfidence as a Cause of
Diagnostic Error in Medicine,” American Journal of Medicine 121 (2008): S2–S23.
“disclosing uncertainty to patients”: Pat Croskerry and Geoff Norman, “Overconfidence in
Clinical Decision Making,” American Journal of Medicine 121 (2008): S24–S29.
background of risk taking: Kahneman and Lovallo, “Timid Choices and Bold Forecasts.”
Royal Dutch Shell: J. Edward Russo and Paul J. H. Schoemaker, “Managing Overconfidence,”
Sloan Management Review 33 (1992): 7–17.
25: Bernoulli’s Errors
Mathematical Psychology: Clyde H. Coombs, Robyn M. Dawes, and Amos Tversky,
Mathematical Psychology: An Elementary Introduction (Englewood Cliffs, NJ: Prentice-Hall,
1970).
for the rich and for the poor: This rule applies approximately to many dimensions of sensation
and perception. It is known as Weber’s law, after the German physiologist Ernst Heinrich
Weber, who discovered it. Fechner drew on Weber’s law to derive the logarithmic
psychophysical function.
$10 million from $100 million: Bernoulli’s intuition was correct, and economists still use the
log of income or wealth in many contexts. For example, when Angus Deaton plotted the
average life satisfaction of residents of many countries against the GDP of these countries, he
used the logarithm of GDP as a measure of income. The relationship, it turns out, is extremely
close: Residents of high-GDP countries are much more satisfied with the quality of their lives
than are residents of poor countries, and a doubling of income yields approximately the same
increment of satisfaction in rich and poor countries alike.
“St. Petersburg paradox”: Nicholas Bernoulli, a cousin of Daniel Bernoulli, asked a question
that can be paraphrased as follows: “You are invited to a game in which you toss a coin
repeatedly. You receive $2 if it shows heads, and the prize doubles with every successive toss
that shows heads. The game ends when the coin first shows tails. How much would you pay
for an opportunity to play that game?” People do not think the gamble is worth more than a
few dollars, although its expected value is infinite—because the prize keeps growing, the
expected value is $1 for each toss, to infinity. However, the utility of the prizes grows much
more slowly, which explains why the gamble is not attractive.