Thinking, Fast and Slow - by Daniel Kahneman (2011)

Daniel Kahneman's life work goes into Thinking, Fast and Slow - the title sums up a good portion of what the book explains, our two main modes of thinking.  He terms the modes System 1 (our essentially instant, intuitive mode of coming up with a quick answer to many questions and decisions) and System 2 (the more deliberative, conscious thinking that we do when we have to - he calls it a lazy system).  System 1 seems to basically be unconscious, and in many situations does a very creditable job of keeping us out of trouble.

But what Kahneman (and his former colleague Amos Tversky) were interested in was the situations in which System 1 goes wrong - systematic biases which steer us away from what economists think of as the rational choice.  And there are many!  Their researches looked at anchoring and framing effects, and the way we tend to fear a small chance of loss as compared with the value we put on small chances of gain.

Note that System 2 is not always perfect either. Especially when it comes to statistical and probability-based questions, even professionals often go astray in their thinking unless they are very careful.  And some of our errors may in fact be helpful in certain ways - for example a bias toward optimism very likely helps make people attempt much more than they would otherwise, and sometimes they succeed!

This book is a readable summary of years of interesting work, and sheds much light on how we all tend to think.  The point is not that we can avoid error, but some awareness of systematic bias can help to trigger System 2 when it can help!

Here's a good review from the NYT by Jim Holt.