The great psychologist Daniel Kahneman has died, aged 90. His masterpiece, Thinking, Fast and Slow, is the book which makes us think about how we think.
The book’s central theme is the two methods of thinking, System 1 and System 2:
System 1 is the intuitive, automatic thought process that we don’t even need to think about.
System 2 is the thought process which requires mental attention and a logical thought process.
Kahneman reveals the pitfalls and biases of fast thinking and the influence of intuition on our thoughts and behaviour. He explains why humans make the choices and jump to the conclusions they do and how we often make blind justifications when we fail to realise that we cannot see the full picture. There is much of relevance in this book for financial modellers and reading it should help hone the logical thought processes needed to create sensible models.
Here is a link to a short podcast on Kahneman from Tim Harford on the BBC’s More or Less: https://podcasts.apple.com/gb/podcast/more-or-less-behind-the-stats/id267300884?i=1000650770059
And better still, buy the book.