Steven Pinker’s Instruction Manual for Your Brain

An urban legend has Amos Tversky, the late co-founder (along with Daniel Kahneman) of behavioral economics, asking a computer scientist what he was working on. The computer man responded, “I study artificial intelligence.” Tversky, a notorious smart aleck, responded, “I study natural stupidity.”

Steven Pinker has studied natural stupidity more carefully than almost any other living writer. Trained as a cognitive psychologist and linguist, Pinker’s books on human behavior include How the Mind Works, The Blank Slate, and The Stuff of Thought. Pinker became one of the world’s foremost public intellectuals with his book on the decline of violence over time, The Better Angels of Our Nature, and its sequel, Enlightenment Now, which I reviewed here.

Why we need to learn how to think

Pinker goes back to basics with Rationality, a beautifully written book on how to think. Why do we need to be taught how to think? Our brains evolved under conditions very different from those we face now, so that our instincts that promoted survival under those conditions may harm us today. We mix up logic with emotion, data with information, and information with wisdom.

Rationality is a step-by-step guide to unmixing these and using hard-headed logic to arrive at useful conclusions.

Readers with a business or economic education will find the material in Rationality familiar and a bit elementary. However, Pinker has an unusual gift for clarity of expression and effectively draws in readers who think they know this stuff already. He takes the reader through the building blocks of rational thought: logic and the perils of logical fallacies, probability, Bayesian inference, risk and utility, signal detection and statistical decision theory, game theory, correlation and causation, and behavioral and cognitive biases. That’s the outline of the book, which I enthusiastically recommend.

It’s not possible to go over all this material – basically, a college-level course in how to think rationally – in a book review, so I’ll focus on three chapters of particular interest to investors: (1) Bayesian inference; (2) risk and utility (briefly); and (3) signal detection and statistical decision theory (that’s how we pick managers). The other topics are very important, but most of them, especially correlation/causation and behavioral biases, have been covered in other literature familiar to well-read investors.