Daniel Kahneman: Algorithms Make Better Decisions Than You

Daniel Kahneman (1934 to 2024) won the Nobel Prize for proving we’re not as rational as we think.

We discuss how to think clearly in a world full of noise, the invisible forces that cloud our judgement, and why more information doesn’t equal better thinking. Kahneman also reveals the mental model he discovered at 22 that still guides elite teams today. 

As we revisit this conversation this summer, I also share a previously untold story in the introduction about how a small, seemingly insignificant moment in his NYC penthouse changed my life. 

11 Key Takeaways from my conversation with Daniel Kahneman

1. Delay Your Intuition: At 22, Kahneman redesigned the Israeli army’s interview system. The old way relied on gut feelings about recruits, and it failed badly. His fix: make interviewers score six specific traits separately, write each score down, then after completing all six scores, close their eyes and give an overall intuition. The interviewers revolted. “You’re turning us into robots,” one complained. But when they tested the new system, it worked dramatically better. That “close your eyes” instruction survived in the Israeli military for 50 years. Most people form an impression in seconds and spend the rest of their time confirming it. The best wait for all the information before letting their intuition speak.
2. Loss Aversion Creates Permanent Programs: When you own something, losing it hurts twice as much as getting it felt good. Once people have a benefit, you can’t easily remove it. When you try, they fight like crazy. The 100 people losing a government subsidy scream louder (and organize better) than the million paying for it. That’s why the government only grows. Every program creates fierce defenders. Nobody fights as hard for lower taxes. Once you give people something (a perk, a feature, a benefit), it’s nearly impossible to take back. The founder who would offer free lunch on day one can’t cancel it on day 1000. Small groups lose something specific, while large groups gain something abstract. Every time.
3. Your Rules Become Your Default: Kahneman’s phone rang during the interview. Someone wanted a book review. “My rule is I never say yes on the phone,” he said. This wasn’t about being difficult. Danny was human just like us, he often said yes to things he didn’t want to do. So he created a rule. Not a goal, not an intention, a rule. It reprogrammed his unconscious mind and turned his desired behavior into his default behavior.
4. Facts Don’t Form Beliefs: “I believe in climate change,” Kahneman said. “I believe in the people who tell me there is climate change. The people who don’t believe in climate change, they believe in other people.” This is how we form all beliefs. We don’t examine evidence and reach conclusions. We trust people we like, then adopt their views. “The reasons are not the causes of our beliefs,” he explained. They’re stories we tell ourselves afterward. Want to change someone’s mind? Facts won’t do it. They need to trust you first. If they admire you, they’ll find reasons to agree. If they dislike you, the best evidence won’t matter. Smart people believe opposite things because they trust different people.
5. The Julia Fallacy: You have the following information. Julia is graduating college. She read fluently at age four. What’s her GPA? You just thought of something around 3.8, and Kahneman knew you would. Here’s why: a four-year-old who reads fluently seems exceptional, maybe 90th percentile. So your brain assumes 90th percentile everything. “It’s idiotic statistically,” he said. Early reading barely predicts college performance. Doesn’t matter. We can’t help ourselves. Stellar interview means stellar employee. One bad presentation means the person can’t teach. Our predictions match our impressions, even when they shouldn’t.
6. Winners Want the Score, Not the Prize: Why do billionaires work 80-hour weeks? “They’re clearly not doing this because they need more money,” Kahneman observed. At that level, money becomes proof that you’re good at what you do. His research found that past $70,000, extra money doesn’t make you emotionally happier, it just makes you more satisfied with your life. And these are completely different things. Happiness is social, it’s being with people who love you. Satisfaction is conventional success: money, prestige, achievements. The tragedy? “People don’t seem to care about how happy they’ll be. They want to be satisfied with their life.” We optimize for the story we’ll tell, not the life we’ll actually live.
7. Behavior Is Situation, Not Personality: When someone acts like a jerk, “look at the situation they’re in,” Kahneman advised. We instinctively blame personality. Psychologists call this the fundamental attribution error. When others speed, we think they’re reckless. When we speed, we know we’re late for something important. “People do good things for a mixture of good and bad reasons, and they do bad things for a mixture of good and bad reasons.” The kindest person will snap under enough pressure, and the worst person will help when the conditions are right. Change the environment, change the behavior.
8. Algorithms Beat You Every Time: “If you can replace judgements by rules and algorithms, they’ll do better,” Kahneman said. Not sometimes, always. We trust our judgment and value human insight, but we’re consistently wrong about this. The real problem is that we prefer confident, intuitive leaders to analytical ones. “People want leaders who are intuitive,” Kahneman observed. We choose the leaders who make us feel good about ourselves, not the ones who make good decisions.
9. Wherever There’s Judgment, There’s Noise: An insurance company asked Kahneman to test their underwriters. Same exact cases, same information, 50 different people. The executives expected maybe 10% variation in quotes. The reality shocked them: 50% variation. One customer gets quoted $10,000, another gets $15,000 for the exact same coverage. “Wherever there is judgment, there is noise, and more of it than you think,” he said. The solution is simple: use algorithms or structured procedures. But companies would rather live with expensive chaos than admit their experts disagree with each other.
10. Legitimize Doubt: Before making a big decision, Kahneman recommended this technique: gather your team and say, “It’s two years from now. We made this decision and it was a disaster. Write down what went wrong.” He loved this because timing is everything. “When people are coming close to a decision, it becomes difficult to raise doubts,” he explained. Anyone slowing things down becomes the enemy. The premortem flips this dynamic, it doesn’t just allow dissent, it requires it. It won’t prevent every mistake, but it forces you to face the problems everyone’s trying to ignore.
11. Clear Intuitions Fool Experts: Experts see all the options. You don’t. When economists design policies or product managers add features, they imagine users comparing every possibility. But you take a job and forget the others existed. You buy a house and stop thinking about the ones you passed on. Life isn’t a menu where you see all choices side by side, it’s one door closing as another opens. “They are completely lost between clear intuitions and strong intuitions,” Kahneman said. The expert thinks small differences matter because they can see them all. You can’t see them, so they don’t. That’s why economists botch predictions and why your phone has 50 features you’ve never touched.

Episode Art photo credit: Richard Saker/The Guardian