Excerpt: this is a reference page. Here you can find the fundamentals of Kahneman’s breakthrough work on human decision making. Firstly, it will address his discovery of fast and slow thinking. And secondly, the importance of our unconscious mind in making decisions and influencing behaviour.
1. Kahneman Fast and Slow Thinking
On this page, we want to give you a quick guide to Daniel Kahneman’s groundbreaking work about decision making. Maybe you’ve already heard of system 1 and system 2. Or you’ve heard Kahneman was the first psychologist to win the Nobel prize for economics in 2002. Could be you’ve heard about cognitive biases and heuristics. Enough to be intrigued. He is one of our heroes and the godfather of behavioural economics. We’ll give you the highlights of Kahneman’s thinking which he published in his best-selling book ‘Thinking Fast and Slow.’
Therefore, this isn’t so much an article, but more a reference page that you can consult whenever you want to know more. Or reread about Kahneman. To make your life a bit easier we have created page sections. So, you can easily jump to a particular subject that is of particular interest to you. We also have included links into this page. Links to more detailed information if you want to dive a bit deeper. The page sections:
System 1 and system 2
Most importantly, the groundbreaking research of Daniel Kahneman showed that our brain has two operating systems. Which he called system 1 and system 2. These are the differences between the two systems of our brain:
- DEFINING CHARACTERISTICS: unconscious, automatic, effortless
- WITHOUT self-awareness or control “What you see is all there is.”
- ROLE: Assesses the situation, delivers updates
- Makes 98% of all our thinking
- DEFINING CHARACTERISTICS: deliberate and conscious, effortful, controlled mental process, rational thinking
- WITH self-awareness or control, logical and skeptical
- ROLE: seeks new/missing information, makes decisions
- Makes 2% if all our thinking
System is slave to our system 1
To summarize, knowing this you could say that our system 2 is a slave to our system 1. Our system 1 sends suggestions to our system 2. Who then turns them into beliefs. Do you want to know more about the differences between system 1 and 2? We’ve made a more elaborate overview of the main characteristics of system 1 and 2. Or maybe you’d like to hear Daniel Kahneman himself explain the concept of system 1 and 2? This is a short but good video to watch. It is only 6.35 minutes long.
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The power of your subconscious mind
Kahneman discovered not only the two operating systems of our brain. His discovery of the bandwidth of each system was what made this research so significant. It was a breakthrough insight into the lack of reasoning in human decision-making. He showed how the two thought systems arrive at different results. Even given the same inputs. And foremost he revealed the power of the subconscious mind. Where we all tend to think we’re rational human beings. Who think about our decisions. And about things we do. Kahneman showed we’re (almost) completely irrational. But that’s a good thing. It’s our survival mechanism.
35,000 decisions a day
On average we all have about 35,000 decisions to make each day. These differ in difficulty and importance. It could be you taking a step to your left or right when talking. Or deciding to take the stairs or elevator. But they all hit you on a daily basis. If you had to consciously process all these decisions your brain would crash. Your automatic system’s primary task is to protect your deliberate, system 2. It helps you prevent cognitive overload.
There are a few ways that our automatic system lightens the load on our deliberate system. First of all, it takes care of our more familiar tasks. By turning them into autopilot routines. Also known as habits. But what your system 1 is primarily doing, is rapidly sifting through information and ideas. Without you even noticing it. Prioritising whatever seems relevant. And filtering out the rest by taking shortcuts. These shortcuts are also called heuristics. We’ll explain to you all about them in the next section.
We are all irrational human-beings
Above all, the most important to remember is that we all have to accept that we are irrational human beings. Almost all of the time. Even if you think you’re not. Somehow we can accept our irrationality. Or at least understand it when it is explained to us. But we keep making the same mistake. When trying to influence someone, we tend to forget they are irrational too. We so often try to convince somebody with rational arguments or facts. We love to tell someone about the benefits of our products or services or ideas.
Decisions are based on short-cuts
However, understand that the decision of the person you’re trying to convince isn’t based on this rational information. It’s based on system 1 shortcuts. What the work of Kahneman shows is that people struggle with statistics. And cannot reason probable outcomes of their decisions. A second very important insight from the work of Kahneman is that our decisions are driven by heuristics and biases. We’ll dive deeper into those in the next two sections.
Heuristic: definition and meaning
The shortcuts our system 1 makes Kahneman calls heuristics. The definition of a heuristic, as can be found on Wikipedia, is:
Any approach to problem-solving, learning, or discovery that employs a practical method, not guaranteed to be optimal, perfect, logical, or rational. But instead sufficient for reaching an immediate goal. Where finding an optimal solution is impossible or impractical. Heuristic methods can be used to speed up the process of finding a satisfactory solution. Heuristics can be mental shortcuts that ease the cognitive load of making a decision.
A heuristic is our automatic brain at work
If we bring it back to Kahneman’s thinking, a heuristic is simply put the shortcut. A shortcut our automatic (system 1) brain makes to save mental energy of our deliberate (system 2) brain. Our survival mechanism at play. You probably are already familiar with the experience of heuristics. We sometimes refer to them as our gut feeling. A guestimate, our common sense or our intuition. We use heuristics for problem-solving that isn’t a routine or a habit. The way we ‘build’ heuristics is by reviewing the information at hand. And connecting that information to our experience. Heuristics are strategies derived from previous experiences with similar problems. The most common heuristic is the trial and error heuristic. It is trying to solve a problem based on experience instead of theory.
The availability heuristic
Another example of a heuristic is the so-called availability heuristic. When making a decision, this heuristic provides us with a mental short-cut. That relies on immediate cases that come to a given person’s mind. Or easier put. We value information that springs to mind quickly as being more significant. So, when you have to make a decision. We automatically think about related events or situations. As a result, we might judge that those events are more frequent. Or more probable than others. You have a greater belief in this information. And we tend to overestimate the probability and likelihood of similar things happening in the future.
Heuristics can be wrong: biased
The problem with heuristics is that sometimes they are wrong. They are nothing more than mental shortcuts. That usually involve focusing on one aspect of a complex problem. And ignoring others. Therefore heuristics affect our decision-making. And subsequently also our customer’s behaviour.
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With all this in mind, you could say that Kahneman has discovered something very interesting about our cognitive abilities as human beings. It’s good to be clear about the meaning of cognition. If we look up the definition in the dictionary it says:
The mental action or process of acquiring knowledge and understanding through thought, experience, and the senses.
What Kahneman discovered is truly paradigm shifting. It is breakthrough thinking that can even hurt egos. We are far less rational and far less correct in our thinking than we’d like to give ourselves credit for. The side-effect of heuristics is that we all suffer from cognitive bias. A cognitive bias refers to a systematic pattern of deviation from norm or rationality in judgment. Whereby inferences about other people and situations may be drawn in an illogical fashion. Individuals create their own ‘subjective social reality’ from their perception of the input.
List of cognitive biases
There are a lot of cognitive biases. If you look on Wikipedia, you can find an extensive list of cognitive biases. You can take a look there to or check out an overview we made of the most common cognitive biases. The most important thing to remember is that we all base our decisions on a heuristic. And we all are influenced by our cognitive biases. By being aware of the most common biases, you can anticipate on them.
Cognitive bias in recruitment
To round things up, I’ll give you an example that ties up all the concepts of Kahneman discussed in this post. Think about recruitment. If you have to interview a person for a position in your team or organisation, the chance of this person is getting hired is proven to be established in the first 10 minutes. What happens? A person steps into the room. Your system I makes a fast, mostly unconscious judgment based on heuristics. This leads to certain biases in your judgment. If the person is similar to you, your system I instantly likes him or her (liking bias). The person wears glasses, your system I thinks he or she is smart (stereotyping bias). It all goes fast.
Lowering mental stress
In conclusion, your system I has sent these suggestions to your system II without you even noticing it. And your system II turns those into beliefs. The rest of the interview your system II looks for affirmation of the system I suggestions. To recap, our brain simply loves consistency. It lowers our mental stress or cognitive overload. And there you go. You base your final judgment on the two operating systems of your brain. Helped by heuristics and skewed by cognitive bias. And we do this all day, in all kinds of situations.
To sum it up
To sum it up, by understanding Kahneman you can understand human decision-making. Because if you understand human-decision making, you can understand human or customer behaviour. You can see how we are predictably irrational. Dan Ariely wrote a beautiful book with this title, which we can highly recommend. However, we just have to accept our own irrationality. And understand that if we want to convince someone or try to nudge them into certain behaviour, that they are just irrational too.
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