Learning From Kahneman’s Legacy: How I Became a Stronger Decision-Maker (and Better Leader)

The Nobel Laureate Daniel Kahneman died last week on March 27th, at 90.

He has significantly impacted how I have approached essential decisions, and I’ll be forever grateful I had the opportunity to learn from him.

After hitting the wall with major product failures in the early 2000s, I promised myself I would better deconstruct product and business excellence.

Interestingly, one can summarize such excellence with a simple yet powerful mantra: “de-risk” decision-making with mental models and simplified frameworks when facing incomplete information.

One of Daniel Kahneman’s books, “Thinking Fast and Slow,” illuminated and completely changed my approach to decision-making.

Here’s what I took away from it and how it made me a better thinker. In a nutshell, two different thinking systems are governing our brain:

System 1 is about fast decision-making, finding shortcuts, and going straight to an answer. It’s perfect for automatic everyday situations requiring an instant response (like a fight-or-flight situation).

System 2 is about slow thinking and involves more in-depth analysis, scenario-building, and weighing options. It is perfect for complex situations.

We need both to operate correctly. But, we tend to be lazy and quickly move into system 1 for a fast and easy answer. This leads to mistakes we could avoid if we only took the time to step back and analyze.

So, our brain keeps playing tricks on us. Kahneman’s book illustrates fast decision-making biases and how intuitive impressions influence our thoughts and choices.?

Let’s see how you’re doing with the following example:

A ball and a bat cost $1.10 together. The bat costs $1 more than the ball.

How much is the ball?

If you’re like the vast majority of humans, you must be laughing now at the apparent simplicity of this problem. You jump the gun and say triumphantly; the ball is $0.10!

That was my answer, and it took me a tenth of a second to reach that conclusion! I was expecting instant gratification until I realized that I was wrong.

How the problem is presented makes most of us jump to the $0.10 conclusion as we leverage our “System 1” thinking and the false confidence from years of elementary math at school.?

It takes some “System 2” thinking, though, to step back, do a proper equation, and realize the cost of the ball is $0.05. Just do the math!

Remember all these ads, statistics, and political messages and how they constantly trick us. They leverage our tendency to jump into fast-thinking System 1.

Theoretically, you could make better decisions if you willingly tune more into System 2 thinking (slow thinking). While that is possibly true, it’s unrealistic, as we rarely have enough time or data to decide in this fast-paced world.

That’s where mental models come in handy. These frameworks help simplify complex things so your brain can go through the noise to make good decisions.

The more models you have, the more equipped you’ll be to assess any situation. Here are the ones I most frequently use:

First Principles: break down complicated problems into essential elements and reassemble them from the ground up. It avoids overthinking by analogy. Elon Musk and his teams followed this fundamental principle when they tackled the SpaceX project.

The Pareto rule (80/20): That one saved me more than once. The principle is that things in life are not evenly distributed. Typically, 20% will provide 80% of the output (like 20% of your customer base, bringing 80% of your profit).

First-Conclusion Bias: Our tendency to settle on first conclusions leads to accepting erroneous results and avoiding asking questions. You can counter it with some valuable and straightforward mental routines.

Opportunity Costs: doing one thing means not being able to do another. It’s a world of trade-offs, and the concept of opportunity cost rules all. In other words, “there is no such thing as a free lunch.”

But you can also come up with your mental models too. Here’s a way to go about it:

• List the decisions you’re making that usually take you longer and are more complex.
• Write down how and why you made these decisions.
• Highlight the (positive) outcome typically reached.

You now have another mental model for the next time you must make a similar decision. You will become a better thinker and speed things up considerably. Couple this with a better idea of what requires fast or slow thinking, and you will have a solid system.

And if you’re genuinely interested in better decision-making, read “Thinking Fast and Slow.” It will help you identify all these unconscious biases surrounding you and how to overcome them.