One Brain: Two Minds

In 2009, Daniel Kahneman was in Munich. He was speaking at a conference in the wake of the credit crisis of 2007. He was on a panel called “Reflection on a Crisis,” with Nassim Taleb, the philosopher-trader who introduced the world to the idea of black swans. They were an odd couple. Taleb was animated with indignation and plans to fix the world. Kahneman was quiet. He softly smiled at Taleb, and spoke of how the mind works, and doesn’t work.1

Kahneman said the mind has two systems. System One is intuitive. System Two is more calculated and reasoning. Sometimes, System One makes decisions that should be made by System Two, and that can create problems for investors. To illustrate the point, he asked everyone to imagine a medallion with two faces in profile, one facing right the other facing left. He was describing the famous coin of Janus, the Roman god of doors and beginnings. He said the images were often used in experiments to show how quickly people see patterns—even if patterns do not exist. The image with a single face is shown to people. They see the image many times. First right, then left, and so on. When people are presented for the first time with the total image of the two faces together, one staring right and other staring left—the first conflict—people think they saw the last image they had just seen, not the total image. He said the experiment shows that it is easy to make people see patterns even when they do not exist. He noticed a similar ...

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