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Nick Di Fabio

@NickDiFabio1

Published: February 27, 2025
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Nobel Prize winner Daniel Kahneman discovered something shocking: You have two brains that make every decision. This thread will change how you understand every decision you'll ever make: đź§µ

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1. The Two Systems of Thinking Kahneman discovered two distinct modes of thinking: System 1 (Fast Thinking): • Intuitive & automatic • Emotional & effortless • Makes quick decisions System 2 (Slow Thinking): • Rational & effortful • Deliberate & logical • Solves complex problems We mostly use System 1, but it's prone to errors. System 2 can catch these mistakes, but requires energy & focus.

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2. Cognitive Biases & Heuristics Our brains use mental shortcuts (heuristics) for quick decisions. But these create systematic errors: Here are a few:

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1) Anchoring Bias: Relying too heavily on the first piece of information 2) Availability Heuristic: Judging probability by what easily comes to mind 3) Confirmation Bias: Seeking information that confirms existing beliefs Understanding these biases helps us think more rationally.

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3. The Illusion of Understanding We think we understand the world far better than we do. Our minds create coherent stories from limited information, leading to overconfidence in our: • Knowledge • Predictions • Understanding Lesson: Be skeptical of your certainty. The world is more random than you think.

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4. Prospect Theory & Loss Aversion People process gains & losses differently: 1) Loss Aversion: Losses hurt about twice as much as equivalent gains feel good 2) Framing Effect: How choices are presented changes decisions ("90% survival" vs "10% death") This explains many irrational financial decisions.

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5. The Planning Fallacy We consistently: • Underestimate task completion time • Overestimate our efficiency • Ignore past experiences Kahneman's solution: Study similar past projects for realistic estimates.

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6. The Halo Effect We judge everything about someone based on one prominent trait: • Attractive people seem smarter • Successful companies seem better managed • Well-dressed people appear more competent Lesson: Judge situations on data, not impressions.

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7. The "Econs" vs "Humans" Model Traditional economics assumes rational people ("Econs"). Reality shows we're emotional & impulsive ("Humans"). This insight created behavioral economics: Understanding why real decisions deviate from rational models.

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8. How to Think Better To avoid fast thinking traps: • Slow down for important decisions • Recognize & adjust for biases • Question your assumptions • Consider the outside view • Use data over intuition Look at how similar situations played out before.

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The Bottom Line Understanding how your brain works is the key to better decisions in: • Relationships • Business • Finance • Life Have you read "Thinking, Fast and Slow "by Daniel Kahneman? Let me know below.

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If you enjoyed this thread… Follow me @NickDiFabio1 for more book breakdowns like this.

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