Daniel Kahneman in Conversation with Michael Mauboussin on Intuition, Causality, Loss Aversion and More

Ever want to be the fly on the wall for a fascinating conversation? Well, here’s your chance. Santa Fe Institute Board of Trustees Chair Michael Mauboussin interviews Nobel Prize winner Daniel Kahneman.

The wide-ranging conversation talks about disciplined intuition, causality, base rates, loss aversion and so much more.

Here’s an excerpt from Kahneman I think you’ll enjoy:

The Sources of Power is a very eloquent book on expert intuition with magnificent examples, and so he is really quite hostile to my point of view, basically.
We spent years working on that, on the question of when can intuitions be trusted? What’s the boundary between trustworthy and untrustworthy intuitions?
I would summarize the answer as saying there is one thing you should not do. People’s confidence in their intuition is not a good guide to their validity. Confidence is something else entirely, and maybe we can talk about confidence separately later, but confidence is not it.
What there is, if you want to know whether you can trust intuition, it really is like deciding on a painting, whether it’s genuine or not. You can look at the painting all you want, but asking about the provenance is usually the best guide about whether a painting is genuine or not.
Similarly for expertise and intuition, you have to ask not how happy the individual is with his or her own intuitions, but first of all, you have to ask about the domain. Is the domain one where there is enough regularity to support intuitions? That’s true in some medical domains, it certainly is true in chess, it is probably not true in stock picking, and so there are domains in which intuition can develop and others in which it cannot. Then you have to ask whether, if it’s a good domain, one in which there are regularities that can be picked up by the limited human learning machine. If there are regularities, did the individual have an opportunity to learn those regularities? That primarily has to do with the quality of the feedback.
Those are the questions that I think should be asked, so there is a wide domain where intuitions can be trusted, and they should be trusted, and in a way, we have no option but to trust them because most of the time, we have to rely on intuition because it takes too long to do anything else.
Then there is a wide domain where people have equal confidence but are not to be trusted, and that may be another essential point about expertise. People typically do not know the limits of their expertise, and that certainly is true in the domain of finances, of financial analysis and financial knowledge. There is no question that people who advise others about finances have expertise about finance that their advisees do not have. They know how to look at balance sheets, they understand what happens in conversations with analysts.
There is a great deal that they know, but they do not really know what is going to happen to a particular stock next year. They don’t know that, that is one of the typical things about expert intuition in that we know domains where we have it, there are domains where we don’t, but we feel the same confidence and we do not know the limits of our expertise, and that sometimes is quite dangerous.

Read the entire transcript — which is fascinating.

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