Book Club Session Recap: Thinking, Fast and Slow
Emily Li and Amy Nelson
The Stepping Stone, June 2025
On Nov. 7, 2024, the Joint Risk Management (JRM) and Leadership & Development (L&D) sections co-sponsored a book club session on the groundbreaking book by Nobel laureate Daniel Kahneman, Thinking, Fast and Slow. Members gathered virtually for a discussion of the book's themes and explored how its insights could transform our careers, and even our personal lives.
Overview of Thinking, Fast and Slow
Thinking, Fast and Slow explores the dual systems of thought that drive our everyday decisions and actions. The book delves into cognitive psychology and behavioral economics and explores how biases and heuristics shape our judgments.
System 1 and System 2
Kahneman introduces the book’s major premise: humans have two distinct systems of thinking, System 1 and System 2.
System 1 is fast, intuitive, and often operates at a subconscious level. This system relies on heuristics, making it more prone to biases. System 1 handles tasks such as determining that one object is farther away than another, localizing the source of a sound, completing common phrases, displaying disgust at a gruesome image, solving simple math problems (e.g., 2 + 2), reading a billboard, and driving on an empty road.
System 2 is characterized by slow, analytical, and conscious thinking. It requires effort and the application of logic and methodical thinking. System 2 is engaged when focusing on what someone is saying at a loud party or solving a complex problem, such as answering a question on an SOA exam.
Neither System 1 nor System 2 is inherently superior; each thrives in different contexts. System 1 excels in routine tasks, allowing us to leverage automatic responses that save mental energy. Imagine having to rethink mundane chores like making the bed or washing dishes every single time—exhausting, right? System 2, on the other hand, is essential for complex, high-stakes decisions. When faced with significant choices in education, careers, or personal life, System 2’s deliberate and analytical qualities empower us to make the best decisions, rather than relying on autopilot mode.
Heuristics and Biases
Kahneman then delves into various cognitive processes that impact our judgment and decision-making abilities. Though not an exhaustive list, below are some heuristics and biases discussed in the book:
- Overconfidence is the tendency to overestimate the accuracy of our knowledge and our abilities. This can lead to errors in judgment and decision-making.
- Loss aversion is the principle that losses weigh more heavily on us than gains. This causes most people’s preference to avoid losses rather than acquire equivalent gains, which, of course, influences our risk-taking behavior.
- Framing effects are the impact on our decisions of how information is presented (the “frame”). In other words, different presentations of the same problem can lead to different choices.
- Regression to the mean is a phenomenon where extreme outcomes are followed by more typical or average outcomes. This shows up in finance, for example, when a stock that experiences a significant spike in price due to market speculation sees its price stabilize to more moderate levels over time. Understanding regression to the mean allows us to avoid faulty conclusions based on short-term fluctuations and emphasizes the importance of long-term trends and averages in our decision-making processes.
Through such examples, Kahneman underscores the importance of understanding these cognitive processes to improve our decision-making.
Prospect Theory
Prospect Theory was developed by Kahneman and Amos Tversky, and for which they both won the Nobel Prize. This is a theory in behavioral economics that posits that how we think about facing risks deviates from the logical maximization of utility. In other words, assumptions of rational economic behavior do not align with our real-life decisions and overlook cognitive biases that are present. Expanding upon Prospect Theory, Kahneman offers advice on how the shortcomings of System 1 thinking can be overcome to empower us to ultimately make better choices.
Discussion Highlights
The book club session sparked a discussion on the real-world impact of Thinking, Fast and Slow, with participants sharing personal and professional insights.
We began our discussion with our general thoughts on the book and the ideas that Kahneman put forth. Overall, participants found the System 1 and System 2 framework helpful to differentiate our different modes of thinking throughout the day, and found examples in their lives that could be grouped into a respective system of thinking.
Some found the style of writing and length of the book overly dense, though they found value in some of the ideas presented. We also noted that Kahneman’s writing asked the reader to switch from System 1 to System 2 at different points throughout the text when he presented various brain teasers or asked us to recall certain examples from our lives.
A Less “Lazy” System 2?
We explored whether working in risk management and the actuarial field broadly leads us to have a less “lazy” and, thus, stronger System 2 than the general population. The group found that this is likely true given that our professional field asks us to apply professional skepticism and consider latent risks that others may not even think about.
The relative importance of System 1 or System 2 seems to change based on where one is in their career. Later in one’s career, participants found that there is more emphasis on System 2 thinking.
We also discussed that System 1 is not necessarily a bad thing, despite the advocacy for System 2 in personal and professional life. Due to the nature of System 2 being very energy inefficient and time-consuming, System 1 exists for a reason. For instance, when we see a car coming towards us, we don't spend time analyzing its velocity and projecting its trajectory; we instinctively hit the brakes. This quick, automatic response is crucial in many real-life situations.
The group also discussed some examples of System 2 fatigue. One participant shared her experience of being unable to engage in insightful or intense discussions with her spouse after work following an intellectually challenging day. Instead, she preferred to engage in routine tasks.
Ironically, we also questioned whether viewing ourselves as particularly adept at System 2 thinking might be a demonstration of the overconfidence bias discussed in the book.
Adversarial Collaboration
To some extent, Thinking, Fast and Slow is an autobiographical account of Kahneman’s professional work in psychology and behavioral economics. He recounted several experiments and interactions with other academics throughout his career. Notably, Kahneman described his working relationship with fellow research psychologist Gary Klein and called the relationship his “most satisfying and productive adversarial collaboration.”
Participants recalled times where they engaged in productive adversarial collaboration with colleagues. Different examples arose from the discussion. For example, one discussed her work in setting assumptions where she challenged the business units as to why certain assumptions were being proposed. Another noted her work on second-line model validation work where she had to challenge the work of and also collaborate with the first-line testers.
We also noted how adversarial collaboration is implicit in the Actuarial Standards of Practice (ASOPs). For example, ASOP 41 fosters the integrity of actuarial work by outlining the importance of the role of review of actuarial communication. In other words, we, as actuaries, cannot just take information at face value; we have to challenge the information as part of our review.
Learning from the Past
As highlighted in Kahneman's book, the principle of hindsight bias is deceptive, convincing us that we “knew it all along” when analyzing past events. This retrospective illusion of clarity can obscure our judgment if we are not vigilant.
Our discussion delved into the significant advantages of recognizing hindsight bias, especially during the post-mortem analyses of projects that could have been better executed. By scrutinizing decisions with an awareness of hindsight bias, we can uncover genuine lessons and insights, rather than falling prey to this fallacy.
Notes at the End
The book club session on Thinking, Fast and Slow fostered an engaging discussion that highlighted the complexities and challenges associated with our rational and non-rational thinking patterns in how we make sense of the world and, most importantly, drive our choices. Participants gained valuable insights by sharing anecdotes where they have seen Kahneman’s theories apply in their personal and professional lives. The ideas set forth in Thinking, Fast and Slow are particularly pertinent in our present world, where we are being asked to make decisions even more swiftly amid an increasingly overwhelming influx of external information.
More to Come!
Did you miss out on the lively discussions in our previous book club sessions? Don't worry! Stay tuned for future announcements and ensure you don't miss any of the excitement. Sign up for the SOA Book Club email list to receive the latest updates and express your interest in volunteering with the program.
Are you eager for more in-depth conversations on hot-button risk topics with fellow professionals? Keep an eye out for the Joint Risk Management Section’s exciting new "Risk and Refreshment" series, featuring one-hour dedicated discussions on selected risk topics. Don't miss your chance to dive into engaging, thought-provoking discussions that will enrich your risk journey!
Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the editors, or the respective authors’ employers.
Emily Li, FSA, CERA, FRM, MAAA, is a Manager at Deloitte, LLP. She can be reached at mengrli@deloitte.com or via LinkedIn.
Amy Nelson, ASA, CERA, is a Senior Consultant at Deloitte, LLP. She can be reached at amynelson@deloitte.com or via LinkedIn.