Seeing is not believing

Financial Events


Kahneman.pngProf Daniel Kahneman is the blog’s favourite living social scientist. He won the 2002 Nobel Prize for economics for his insight that:

• Economists are wrong to assume human beings are motivated by self-interest and make rational decisions
• In fact, human judgement may take short-cuts that systematically depart from basic principles of probability
• The avoidance of loss and disadvantage is a more important driver than the hope for gain and advantage

CMAI kindly allowed the blog to repeat Kahneman’s most famous experiment on the day of his Nobel award, with an audience of 500 people. His insight was again proved correct.

Unfortunately, most policymakers ignored his work, although it could have helped them to avoid the current financial crisis. The blog only hopes they will now read his new book, ‘Thinking, Fast and Slow’. It raises important questions about how we allow perception to dominate reasoned analysis, and could be a powerful tool for promoting global economic recovery.

The chart above is one of his examples:

• It appears that the top line is shorter
• But if you measure it, they are both the same

Now you know they are the same, does your mind accept this fact?

The answer, certainly in the blog’s case, is ‘no’. It wants to believe the top line is shorter, even though it drew the lines. This is Kahneman’s point.

He argues that the mind has two ways of operating:

• One is fast and intuitive (System 1)
• The other is slow and analytical (System 2)

And as this example shows, they operate independently, so that “you cannot decide to see the lines as equal, even though you know they are. To resist the illusion, you must learn to distrust your impressions of the length of lines when fins are attached to them”.

Politicians can’t summarise Kahneman’s work in 146 characters on Twitter. Nor can it provide a sensationalist headline for the mass-media.

But his work does explain why such ‘sound-bites’ can appear effective. They allow us to use System 1 and rush to instant judgement.

It also explains why current policies, mostly based on System 1 thinking, may appear to be rational, whilst taking us steadily in the wrong direction.


2012 sees rising political risk, and protectionism


The world enjoyed an economic SuperCycle between 1982-2007. Its largest economy,...

Learn more

Record high oil prices hit demand


The blog is quite surprised at the mainstream media’s lack of interest in ...

Learn more
More posts
Economic risks rise as the lockdowns end

It is now 13 years since I wrote the first post here, in June 2007. A lot has happened since then: ...

China’s property sector is at the epicentre of the crisis

A branch of Centaline Property Agency in Hong Kong © Bloomberg Indebted Chinese property developers...

“They may ring their bells now, before long they will be wringing their hands”

The wisdom of Sir Robert Walpole, the UK’s first premier, seems the only possible response to ...

Will stock markets see a Minsky Moment in 2020?

Few investors now remember the days when price discovery was thought to be the key role of stock mar...

Chart of the Decade – the Fed’s support for the S&P 500 will end with a debt crisis

Each year, there has been only one possible candidate for Chart of the Year.  Last year it was the ...

$50bn hole appears in New York financial markets – Fed is “looking into it”

Most people would quickly notice if $50 went missing from their purse or wallet. They would certainl...

China’s renminbi and the global ring of fire

China’s property bubble puts it at the epicentre of the ring of fire © Reuters  China’s de...

Stock markets risk Wile E. Coyote fall despite Powell’s rush to support the S&P 500

How can companies and investors avoid losing money as the global economy goes into a China-led reces...


Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more


Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more