5 Key Learnings For Thinking Fast and Slow

Intro

Bias. What is it? Where does it come from? What are its flavors? How does it work?

If you have ever had any of these questions, I may have something for you.

Why do always same kind of people get promoted? Why is that I have more fear of losing than appetite for winning? Why do I feel that some performance management practices make no sense?

If you any of these or similar questions, I may have something for you as well.

It is called "Thinking, Fast and Slow", a magical book from Daniel Kahneman . While I will tell you more about the book in the next sections, let me take one second to talk about the author. Much of the decent, well researched articles you will find out there on business and thinking either come from him or mention him and his work.

For nothing else, this book is an amazing door into his life, thoughts and may truly transform the way you act and the way you understand people. Now, to the book.

The Two-Mind System

Which of these lines is longer? You may have seen this before... and even so, what did your brain tell you in first place?

They are both same length. We can rationalize and get to this conclusion, and it is not really that difficult. A ruler and 2 seconds will do the job.

However, we don't have a ruler and 2 seconds for measuring every line coming up in front of us, and that would be extremely inefficient. Most of the time, we can survive even if our assessment of something, like the length of these lines, is wrong.

That's the reason we operate under a two-mind system. We have a System 1 which operates automatically (quickly), with low effort and low control; and a System 2 which allocates attention to the effortful mental activities that demand it, including complex computations. Guess which one gets into action first?

Yes... for most of our lives, we are operating under System 1. It "gets the job done" most of the time, demands less resources and allows us to move forward with our lives.

That is, in principle, the reason why we introduce bias into our everyday lives... we are not actually thinking! We think we are in control when we aren't actually.

Key Learnings

The book goes through 38 chapters (plus a conclusion), structured in 5 parts (Two Systems, Heuristics & Biases, Overconfidence, Choices, Two Selves), each of them bringing up a concept enriched by the life and experiences of the author that further demonstrates how these two systems work in our lives.

To avoid eliminating all the great surprises and re-writing the book, let me share with you my favorite five learnings or insights, in the hopes it will spark your interest to go through this masterpiece by yourself:

(1) The law of small numbers - For many years, I have offered survey-based services, and the most challenging piece was not technical. To get tools working was easy. Getting results that would make sense for decision-making, on the other hand, was almost impossible.

Why? Most often than not, only a very small sample of the universe evaluated would partake in answering those surveys. I thought at the time that the challenge was to ensure people would do the first click; later I realized that there were broader issues earlier than that, e.g. the lack of diversity on the pool of people participating.

In the book, Daniel shares examples of how findings from large numbers don't necessarily apply for small numbers; and why care must be taken with small samples or random samples. Why those results may not have significance at all!

Some time back, I saw a customer satisfaction survey results being posted, together with a lot of praise for the amazing results of more than 90% of the responses qualifying the services as "good or excellent".

I couldn't hold back the question, since I have learnt this from the book: how many people responded to the survey? It turns out that only few random services on the portfolio were participating (random sample), and out of those only a 9% of the people actually responded to the survey (small sample).

That is right: they managed to put together the two bad practices, and then to celebrate the results. You may feel even worse when I tell you this... those results were used to determine the amount of bonus to be paid for that particular organization.

(2) Regression to the mean - Luck (or lack of) may produce extraordinary results, but chances are the results will come back to normal. What does that mean?

Let's start with the example from the book: according to the author's experience in the Army, higher ranked officials believed that yelling at bad performers would increase their performance (yell at them!), and praising great performers would make them perform worst (don't praise them!).

His researched proved to be an illusion. The extraordinary outcomes were most often unusual, and they would come back to the norm. There is a funny experiment explained in the book to illustrate that, but we probably don't need it... let's come back to sports.

I love soccer, and every year I see the "new Pele", or the "new Maradona". If you follow the sport, you may have heard about Bale... or Balotelli. Those are great players, don't get me wrong... but it stops there.

They may have had an incredible year, maybe even two or three of them, but next they come back to their natural average. They will obviously also get a few terrible years, and usually due to the performance pressure they won't even recover to their average because they won't have the opportunity to.

The extra rewards, as the extra punishment, work actually against those individuals on their longer term. They could deliver much more, yet usually won't be due to the wrong incentives.

Obviously, that doesn't apply to Cristiano Ronaldo or Lionel Messi!

(3) The Outside View - When confronted with an outside view, author and his team decided to continue with a project despite of how clearly bad the forecast was when comparing with the perspective of other similar projects.

What did happen? They feel for the planning fallacy (close to best-case scenarios) and for irrational perseverance - believing is good only to a certain extent. For being consistently successful in business, we must add monitoring and control, and the outside perspective plays a key role there.

It is a way to get your own biases challenged, to allow for diversity of opinion, to invite completely different experiences. This is not about doing what others want; neither to stop because others disagree with you. It is about embracing perspectives, it is about continuous learning, it is about honest intellectual curiosity.

(4) Optimists and Entrepreneurial Delusion - Optimism has proven to have positive effects as it drives action. It can be a gift for the children as it pushes for individual success.

I love Growth Mindset, applied with Mindfulness, and have gone through several practices myself, as well as sharing many of them with my own children. I do believe that being positive about the future helps shaping up this future.

All that said, in the context of business, it may lead to excessive risk taking.

On a study from Ulrike Malmendier and Geoffrey Tate, it was found that overconfident CEOs regarded as celebrities by the press would be linked to companies which would subsequently under-perform.

I just read a study around Jack Welch from GE that would illustrate that concept extremely well. It maybe something for you to monitor in these "Social Media" days while making investment decisions...

(5) Experienced Utility - Let's understand this one through the example in the book.

Two random patients, A and B, would experience pain for some time (let's say, 2 minutes). Patient A would suffer for shorter time (let's say 1 minute), but the pain at the end of the experiment was the highest possible. Patient B would experience entire 2 minutes of pain (double of it!), but from the peak pain (around let's say 1 minute) the pain would reduce until minor levels by the end of the experiment.

How did they feel?

However Patient B suffered much more throughout the experiment, patient A would rate his experience as more painful. According to the research, it would work with both negative and positive experiences.

That relates to something many experienced public speakers told me over time: yes, it is super important to capture the audience at the beginning; it's important to maintain them interested; however, what you really, really want is that they leave with a positive, impactful sensation at the end of your speech.

Such a concept can be quite an insight also for when you are designing services and solutions that enhance impressions and increase the opportunities for continued business.

Observations

This book (cracked) opened my mind (with a hammer). It is a technical book, a management book, maybe also a biography and even a novel. It is about psychology, and it is about statistics. There is something for absolutely everyone in there.

Nothing in life?is as important as you think when you are thinking about it.

I recommend a very slow reading to allow your System 2 to take a bit of action there.

• Easy of reading: 3 stars. It was not an easy reading - and I actually took my time to re-read it once more, going a bit faster, to re-cap some of the key concepts.
• Learning something new: 5 stars. I felt much better equipped to understand my own limitations and challenge my points of view and decisions going forward. To add, I have found the Infographic below, which helped to understand cognitive biases even better.
• Interesting and Engaging: 5 stars. I love how this book is also a tribute for the friendship between the author and his dearest friend. It definitively shows how much we are capable to do when we are together, and when there is genuine love and passion involved in the process of doing something.

Have you read the book? What is your favorite insight?

You didn't read the book? Then... what resonates the most with you from this review?

Let me know in the comments and remember to leave your Like and subscribe to this newsletter for more book reviews!

Disclaimer: this is an edit from one of my very first articles published here in LinkedIn. As it is one of my favorite business books and since I started a newsletter, I felt it deserved a space in the collection. Have I improved from the original? A link to the original article is available here: Amazing learnings from "Thinking, Fast and Slow" | LinkedIn