Thinking Fast Thinking Slow

Our decisions are governed by two thinking systems:

? System 1 ‐ fast, intuitive, feeling based system  

? System 2 ‐ slow, reasoning based system “When we think of ourselves, we identify with System 2, the conscious, reasoning self that has beliefs, makes choices, and decides what to think about and what to do.” – Daniel Kahneman

Although System 2 believes it’s the hero of our lives, the automatic System 1 is more in control of our decisions than we realize.  “System 1 effortlessly originat(es) impressions and feelings that are the main sources of the explicit beliefs and deliberate choices of System 2… (System 1) is the secret author of many of the choices and judgments you make.” – Daniel Kahneman

If we don't periodically slow down and use System 2 to verify System 1’s intuitive judgment, we might make costly decisions and choose the wrong career, choose the wrong business partner, or commit to the wrong project.

Three primary ways System 1 (the fast thinking system) makes costly decisions:

Frequent Exposure Bias

“A reliable way to make people believe in falsehoods is frequent repetition, because familiarity is not easily distinguished from truth. Authoritarian institutions and marketers have always known this fact.” – Daniel Kahneman

When students at the University of Michigan were exposed to Turkish sounding words like ‘kadirga’ and ‘saricik’ in ad boxes on the front page of the school newspaper for several weeks, those students were more likely to rate the random words as meaning something ‘good’ on a questionnaire. If we don’t check for the ‘frequent exposure bias’ (or what psychologists call the mere‐exposure effect) prior to an important decision, then our preference will be based on environmental conditioning. To combat the frequent exposure bias and exercise free will, we must learn to pause before an important decision and silently ask: “Is this the best option or just the option I've been frequently exposed to?”

Status Quo Bias 

 System 1 defaults to choices that maintain the status quo because System 1 psychologically weighs losses twice as much as gains (loss aversion). System 1 is emotionally attached to objects it owns or invests in (the endowment effect) and overvalues the status quo. To experience System 1 loss aversion, ask yourself: “if I flipped a coin and could lose $100 on tails or win $150 on heads, would you take the bet?” Did you feel a slight hesitation to the gamble? Most people do, even though it’s a reasonable bet to take. To illustrate the endowment effect, Kahneman gave one group of students a mug, and another group of students the choice to take the mug or a sum of money they thought was equivalent to the value of the mug. The first group (the mug owners), valued the mug at $7.12. The second group (the choosers), valued the mug at $3.12! Same mug…slightly different point of view...drastically different perceived value.  If we instinctively overweigh losses (loss aversion) and overvalue what we own and invest in (the endowment effect), we are trapped by the past and destined to maintain the status quo.  Counteract the status quo bias by applying a fear to the loss to options outside the status quo, by asking: “What opportunities do I lose by maintaining the status quo?” (or, “If I continue say yes to this, what am saying no to?”)

Tunnel Vision

System 1 loves to use limited information to form quick judgments and then block out conflicting information. I call this the tunnel vision bias; author Daniel Kahneman calls it W‐Y‐S‐I‐A‐T‐I (What You See Is All There Is). Kahneman explains that System 1 sees two or three pieces of information and then “infers and invents causes and intentions then neglects ambiguity and suppresses doubt.” We meet someone and assume we know their believes based on their profession and what they look like (programmer who looks like a hipster is liberal, right?), but realize later that our initial judgment was wrong.  Counteract the natural tendency to form beliefs on limited information, by routinely asking: “Why might the opposite be true?”

“Maintaining one's vigilance against biases is a chore but the chance to avoid a costly mistake is sometimes worth the effort." – Daniel Kahneman