Dr. Daniel Kahneman, winner of the 2002 Nobel Memorial Prize in Economics, joins us to discuss his book Thinking, Fast and Slow. 

In this video segment, Daniel answers a question from the audience and shares the types of conditions that call for the different systems of thought, and how to tell which is more applicable in a given profession. The full version of the interview can be watched here. A full transcript follows the video.

Audience member: In thinking about how we can apply your kind of framework to our decision-making in day-to-day life, in what domains do we stand to benefit most from System 1 thinking, and in what domains do we stand to benefit the most from System 2 thinking?

Daniel Kahneman: I think you need System 2 thinking, and you need statistics, when you're dealing with a world where there is a signal but it's faint relative to noise. That is where intuitions are worst, I think. In a world where it's not completely chaotic -- and I think the financial world is probably like that.

There are domains where there are skills that people can acquire. My guess would be -- I'm sure that's not what you do -- but that high-speed trading is probably something that people can get good at. It's a skill, like driving. You get a sense for what's going on.

I don't think you can get a sense for where the market is going. What you can get is the illusion that you have that sense, so being critical and asking, "Is it possible that we really can trust our intuitions on this? Do we have the goods? Do we have the evidence to support the proposition that intuition can be trusted here?"

Intuition can be trusted for physicians. I'll bring that example. There are domains, for a given physician; there are diagnoses that he can recognize. That doesn't mean that he can trust his intuitions, or her intuitions, about everything.

You have to know when you have the skills, and you have to know when you are guessing, which is quite difficult to do, actually.

Morgan Housel: Who should win the Nobel Prize this year?

Kahneman: I have a perennial candidate. I want Richard Thaler to win, because I invited him to Stockholm. He has to return that invitation, and it had better be in my lifetime.

He is not only my candidate. I think he's a good candidate.

Housel: Thank you very much.