Daniel Kahneman and His Impact on Digital Analytics

As many of us were looking forward to and perhaps making last-minute plans for Easter, Daniel Kahneman has died. Kahneman was a Nobel Prize for Economics winner for his work with the late Amos Tversky on many things, but perhaps most notably loss aversion bias. Kahneman was also a pioneer in Behavioural Economics, merging Psychology with Economics. However, Kahneman also achieved notoriety in his own right for his famous book Thinking Fast And Slow. This book earned him a slot in many Digital Analytics practitioners' virtual Panini sticker albums.

System 1 and System 2 Thinking

The main thing people know the book for is Kahneman's famous mental test. Imagine you come across a pack containing a baseball ball and a bat for $1.10, and you know the bat costs $1 more than the ball. How much do the ball and the bat cost on their own? You would be wrong if you answered that the ball costs $0.10 and the bat costs $1. However, you would be surprised how many intelligent people make the same mistake. You would be in excellent company. The correct answer is $0.05 and $1.05.

Kahneman posited that when you choose the fast, incorrect answer, you use the fast mode of thinking, and when you take your time and give the correct answer, you use a slower, more deliberate, but correct way of thinking. He called both thinking methods systems 1 and 2, respectively.

Before jumping to the wrong conclusion, we all use both systems, echoing what the famous Russian dissident Aleksandr Solzhenitsyn wrote, another Nobel Prize but for literature: "The line separating good and evil passes not through states, nor between classes, nor between political parties either -- but right through every human heart -- and through all human hearts."

Could we live our lives relying only on system 2? Is it even desirable? The answer to both is probably no. System 2 drains our resources, and system 1 usually lets us make adequate decisions. Life can't wait for System 2 decisions quite often. The critical concept here is?satisficing;?it?is sufficient and satisfies the requirements.

Kahneman's contribution to Digital Analytics comes from the common belief that achieving buy-in and hard work as a digital analyst results in change, improvements and business value; you should leverage your stakeholders' system 1 rather than system 2.

It's usually the same people who believe that data visualisation helps the stakeholders understand and data storytelling helps them remember. If your stakeholders have to think harder than they should, don't understand and need help remembering your recommendation, you, as a digital analyst, stand no chance of getting buy-in.

If you feel that a?but?is coming, here it is. Leveraging system 1 feels like insulting the stakeholders' intelligence. I do not believe in data visualisation or storytelling because they resonate with Hume's Fallacy: "Correlation is not causation."

The lack of understanding does not cause the lack of buy-in, and a hazy memory does not cause it either. Piling up fallacies of the same sort will not overcome the lack of buy-in. If it did, what's stopping you from asking your local Oompah band to play under the window of your stakeholders? After all, it would help if you had asked them to come during your meeting. Indeed, that oversight is what prevented them from agreeing with your recommendations.

I will be charitable. The Oompah band argument is a silly one. Leveraging system 1 and avoiding system 2, data visualisation and storytelling probably won't hurt. But remember that what drives people rarely relies on understanding or remembering. You only need to look at the tulip mania in the Netherlands in the early 17th century, Bitcoin, and the Nvidia share price. Leveraging the Endowment Effect instead holds more promise, but I digress.

Loss Aversion Bias and Framing Effect

Another contribution of Kahneman to Digital Analytics is his work with Amos Tversky, which features in Thinking Fast And Slow: the loss aversion bias. Other research teams have challenged their research and could only partially reproduce the results. Framing your argument the right way and framing effects is what Kahneman has covered at length in his book. You could present a recommendation with a 70% chance of success or a 30% risk of failure. Although strictly equivalent from a logical point of view, you might get buy-in by focusing on the positive and lose it if you focus on the risks.

As a digital analyst, you should still frame your recommendations as a loss of money occurring at the moment of your presentation to your stakeholders. For example, if by changing X, the company could increase profits by 10%, try saying that it is losing 10% daily until they implement recommendation X. Isn't it more powerful?

Another example is one that Adam Greco gave at several MeasureCamps. If memory serves, while working as web analytics manager for the Chicago Mercantile Exchange, he approached his superior with an interesting proposition: We have this metric that's at, say, 15%. It could be at 100%, so the business loses a six-figure sum yearly. Please give me the budget to hire someone; their job will bring that metric to 100%. He got his budget. That's leveraging the loss aversion bias like a champ.

System 0 - an Expansion Proposition

Kahneman's most significant contribution to digital analytics may not be getting us to think about framing our recommendations better. Perhaps we can think of an earlier article I published about Kahneman as a virtual conversation between Kahneman, Antonio Damásio, and Sigmund Freud. The conversation's outcome is that there might be a system 0 accounting for how decisions emanate from our body and making the case for gut-feel decisions.

People fall along a spectrum. On the one hand, we have people who have no issue admitting that emotions drive their decisions, and on the other hand, we have people who refuse to decide until they have all the facts and data.

Kahneman probably did not consider the existence of a system 0. Freud, the famous Austrian neurologist and father of psychoanalysis might have explained how system 0 could be the expression of the?id, system 1 resembles the?ego, and system 2 is the?superego.

Damásio, leaning on his research on the autonomous nervous system, the Iowa Gambling Task and his famous patient Elliot, would have remarked that there is a biological process capable of making decisions at the subconscious level. With more facts and data, the decision can become conscious. People vary in how much facts and data they require to become comfortable with the decision they are about to make.

As a digital analyst, framing effects are a crucial concept; we have Daniel Kahneman to thank for this. However, we must also realise that systems 1 and 2 are only the tip of the proverbial iceberg, a visible part of a broader spectrum of thought that should include the autonomous nervous system. This could explain gut-feel decision-making and the role of emotions in decision-making. Without emotions, you can think fast or slow but can't make decisions and can't help stakeholders give you buy-in.

#MeasureCamp #DigitalAnalytics #Kahneman #BuyIn #WAWCPH #CBUSDAW

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