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One word keeps coming up in Daniel Kahneman’s conversation. It is luck.

The 80-year-old Israeli-American is recognised as one of the most influential thinkers alive today. His theories of dual-speed processing and heuristics are to cognitive psychology what Darwin’s theory of evolution was to biology. His talent for describing his findings in clear, illuminating language has earned him a popular following most rock bands would envy.

And yet the way he tells it, this impish octagenerian sitting opposite me in the Royal Institution library, almost all of his findings were sheer chance. He was fortunate to survive an early boyhood as part of a Jewish family in occupied France, lucky too that his mother was a “talented gossip” who inspired his fascination for how very strange people are (including the SS officers patrolling their town). He claims he wouldn’t have made any of his advances if it wasn’t for a chance meeting with his late friend and collaborator, Amos Tversky, on a “lucky day” in Jerusalem, 1969. “It was sheer luck that I met him, that I liked him, that we worked together so well and that our method of doing so would prove to be so influential,” he says.

In 2003, when he won the Nobel Prize for Economics for his work on prospect theory, it was “sheer luck” again. “You know the Nobel Prize is not given for the quality of the work...” Still, bit of a fluke that the idea that humans are not rational financial beings was so startling to economists and created the entirely new discipline of behavioural economics.

As for Kahneman’s million-selling 2011 book, Thinking, Fast and Slow — the distillation of his life’s work, dedicated to Tversky, who died in 1996 — well, we count ourselves lucky that he wrote it at all. “I hated every minute of writing it and I didn’t like it when it was finished,” he complains. “So its success has been a great surprise to me.”

For anyone who has read it, it is not surprising in the least. Its ideas have influenced everything from baseball team selection to the formation of David Cameron’s Insights Unit. Moreover, far from false modesty, Kahneman’s amused fatalism is a product of his own theories. As he says: “It’s all too easy to tell stories that make sense of one’s life in retrospect.” The world is far more random than we are programmed to believe.

At the heart of his and Tversky’s work is the idea that when we think, we use two systems. There is our “fast” System 1: automatic, effortless, intuitive, capable of providing instant answers to simple questions like “2 + 2 =” or “Do you love your mother?” Then there is our “slow” System 2, the back-up processor, which comes into operation when we need to stop and think about questions like “What’s 24 x 17?” or “What’s the endgame in Crimea?”

While we like to think we are guided by our System 2s — that we are rational, calculating beings — System 2 is lazy, all too ready to endorse the snap judgments and impressions of System 1. We form mental shortcuts (“heuristics”) to simplify complex questions: so instead of “Is this party capable of leading Britain?” we ask, “Do I like David Cameron’s face?”. We are influenced by “anchors” — an estate agent telling us a two-bed flat in Hackney is worth £20 million — and by “framing devices” — whether the question is phrased “Should Scotland be an independent country?” or “Should Scotland remain part of the UK?” We are prone to use sensational stories to explain events rather than rationalise their probability — so if we hear of two cycle deaths in one week, we assume it’s a whole lot more dangerous on the road, even though it’s more likely to be random.

Through a series of zany experiments involving roulette wheels and loaded dice, Tversky and Kahneman showed just how easily we can be led into making irrational decisions — even judges sentencing criminals were influenced by being shown completely random numbers. They also showed the sinister effects of priming (how, when people are “primed” with images of money, they behave in a more selfish way). Many such mental illusions still have an effect when subjects are explicitly warned to look out for them. “If it feels right, we go along with it,” as Kahneman says. It is usually afterwards that we engage our System 2s if at all, to provide reasons for acting as we did after the fact.

One of the most amusing episodes in the book comes when Kahneman visits a Wall Street investment firm. After analysing their reports, he calculated that the traders, who were highly prized for their ability to “read” the markets, performed no better than they would have done if they made their decisions at random. The bonuses that they received were, therefore, rewards for luck, even though they found ways of interpreting it as skill. “They were really quite angry when I told them that,” he laughs. “But the evidence is unequivocal — there is a great deal more luck than skill involved in the achievements of people getting very rich.”

The same is true when we assess the success of one company against another. He describes spending an evening at the home of one of the most famous CEOs in the world who became “really quite embittered” as he explained how his billions were largely the result of chance. Not that he thinks we will ever call bull-shit on the myth of the all-seeing CEO who deserves their eight-figure salary. “Our mind is an instrument for making sense of the world. We make sense of the world by telling causal stories — and causal stories are always going to have heroes in them. The things that could have happened and would have changed events do not come to mind.”

Hence his interpretation of the 2008 financial crash. I ask if that was System 2 taking a holiday as bad decisions were made and reinforced but his focus is different: “The biggest mistake to make was to say that it was predictable. Highly intelligent people failed to make that prediction. There were many who thought it might happen and then after the event they say they knew it was going to happen. That is a misuse of the word ‘know’.”

Kahneman has now retired from academia but remains in demand as a consultant, advising large firms on decision-making. He is currently fascinated by this concept of “knowing”. “What does it mean to know something?” he asks, his eyes sparkling behind his glasses. “It has very little to do with actual evidence. It is usually when you have no alternative, when it is the only thing that comes to mind. This is especially true if it is anchored psychologically by the fact that other people you trust also believe in this thing. And it is only then that you invent reasons for it.”

He assert that this is why people never change each other’s minds when they argue about politics. “It’s because the reasons that they cite for their beliefs have very little to do with their actual beliefs, which are usually informed by chance social factors. Why do I believe in global warming? It is because I believe the kind of people who tell me there is global warming!” He starts to laugh. “I have absolutely no evidence.”

This creates correlations that make no sense at all — for example, people who are opposed to gay marriage are also likely to doubt global warming. “It has an associative and an emotional coherence, that’s all.” One conclusion is that scientists are far more likely to persuade the public by telling them stories than by giving them facts. “If you want to influence people about global warming, you have to speak to System 1 — we overestimate the influence of speaking to System 2. It’s quite disturbing when you realise people consider facts irrelevant.”

His life’s work seems to have left him with an amused sense of humans as a loveable collection of flaws.

“The idea of self-defeating behaviour, of fate working through the actions of individuals to ultimately destroy themselves — that is a major theme. We put an inordinate weight on minor embarrassment relative to significant consequences. I would imagine that many people have died in house fires because they were looking for their trousers.”

It is tempting to call him a pioneer in the field of human stupidity — but he rejects the description. “We are not stupid. These are side-effects of a system that otherwise works extremely well. The hero of my book as far as I’m concerned is System 1. But that’s natural, It has had a much longer time to evolve. It is System 2 that is the lazy one... but it’s a work in progress.”

Daniel Kahneman appears in conversation tonight at Central Hall Westminster as part of 5 x 15 events. 5x15stories.com

HOW TO THINK FAST AND SLOW

Do keep natural impulse in check. Kahneman says we have two systems of thought — fast, based on intuition and impulse; and slow, based on calculation. We naturally lean to fast, especially when tired, but need to know when to distrust it. For example, it works for predicting likeability but slow thinking may be needed to supplement it and see how efficient someone might be at a certain job.

Do teach yourself to think long-term. The “focusing illusion” makes the here and now appear the most pressing concern but that can lead to skewed results.

Do be fair. Research shows that employers who are unjust are punished by reduced productivity, and unfair prices lead to a loss in sales.

Do co-operate. What Kahneman calls “bias blindness” means it’s easier to recognise the errors of others than our own so ask for constructive criticism and be prepared to call out others on what they could improve.

Do present totals rather than losses for more rational reactions. People naturally focus on differences rather than stand-alone objects. So investors are more affected by changes in wealth than by wealth itself. Counteract this by telling them how much they have rather than how much they have lost.

Do keep things in perspective. “Experienced” well-being is different to “remembered” well-being. The remembering self does not care about the duration of a good or bad experience but rates it by the highest or lowest point and the way it ends.

Don’t let failure bring you down. However much you plan, random chance has a powerful influence and failure of any kind is statistically followed by success.

Don’t put all your faith in fund managers and accountants. Kahneman’s analysis of their long-term performance reveals it is not skill but luck that is responsible for their successes.

Don’t ignore feelings. Happiness is a real experience; therefore it can be measured, studied and understood, as a goal for society and influencing economics.

Don’t succumb to “the illusion of validity”. Repetition and clarity can make “facts” appear true when actually we must continue to question them.

Don’t frown if you want people to do as you ask. A negative expression causes people to be more analytical and questioning.