Ch 2 consumer theory basics

System 1 can detect a note of anger in a voice on the

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Unformatted text preview: aints (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. For Kahneman, however, the main protagonist is System 1. This is the agent of our automatic and effortless mental responses. System 1 can add single-digit numbers and fill in the phrase “bread and —.” It is equipped with a nuanced picture of the world, the product of retained memory and learned pat terns of association (“Florida/old people”) that enable it to spew out a stream of reactions, judgments, opinions. System 1 can detect a note of anger in a voice on the telephone; it forms snap judgments abou t those we meet, Presidential candidates, investments that we might be considering. The flaw in this remarkable machine is that System 1 works with as little or as much information as it has. If it can’t answe r the question, “Is Ford (F) stock a good investment?” it supplies an answer based on related but not really relevant data, such as whether you like Ford’s cars. System 1 simplifies, confirms—it looks for, and believes it sees, narrative coherence in an often random world. It does not perform complicated feats of logic or statistical evaluations. You hear about a terrorist incident and want to avoid all buses and tr ains; only if you slow down, employ the tools of System 2, do you realize that the risks o f terrorism affecting you are very slight. Willpower requires effort; it is a feature of System 2. In an experiment, 4 -year-olds who were able to delay eating an Oreo scored higher, a decade later, on IQ tests. Kahneman suggests that the ability to switch to System 2 is a sign of an “active mind” and a predictor of success. Contrivance though it is, this framework is remarkably effective in describing how we think; we believe we are creatures of o ur thinking selves, but many of our opinions merely ratify o ur automatic responses. In contrast to Malcolm Gladwell, Kahneman is telling us not to blink. Kahneman is pe...
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This note was uploaded on 03/20/2014 for the course ECON 204 taught by Professor Ajazhussain during the Fall '09 term at University of Toronto- Toronto.

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