If Malcolm Gladwell’s one word is “blink”, then Daniel Kahneman’s one word is “think”. In “Thinking Fast and Slow”, Kahneman, a professor emeritus at Princeton University and the only non-economist to win The Nobel Peace Prize in Economics, explains how our mind works “fast and slow,” and how our “two selves” shape our viewpoint. This book combines psychology and economics and is consistently on the New York Times Bestseller list in the business category, garnishing rave reviews far and wide.
Kahneman’s aim for the book? “To improve the ability to identify and understand error of judgment and choice, in others and eventually in ourselves, by providing a rich and more precise language to discuss them.” And he does just that.
Ideal read for: Financial Advisors, Senior Executives, Entrepreneurs, Marketing Professionals
Kahneman challenges us to “think about thinking”, and if we do so, we can teach ourselves to think better. Our mind counters itself, distorts data, and misleads us. This “cerebral” work states that our brains are directed by two decision-making processes that clash in style. These two cognitive systems your mind uses when you think, he simply refers to as:
- “System 1”
- “System 2”
Which system you use and how you think depends a lot on the effort you are expending. Both of these systems are important, however, we value System 2 and we discount System 1. Kahneman says even though we think we are rational, we are not – we are full of biases. There are two ways thoughts come to us…
- Instinct
- Reason
System 1 (Instinct) – works automatically and easily without much effort, making quick judgments based on familiar patterns – it’s our “gut reaction”. It works well a lot of the time, but when the stakes are high it often fails us. We live in a System 1 world where there is a need for fast processing and efficiency. System 1:
- Maintains our world view and interprets our emotions
- Carries out our automatic skills (like riding a bike)
- Presents us with associated meanings quickly and involuntarily
- Takes us to the best solution quickly when faced with a threat
- Infers that we have the whole story when working with a piece of data – WYSIATI (“what you see is all there is”)
- Example: Let’s say that your only piece of data about someone is their appearance. Your System 1 will fill in what you don’t know with assumptions derived from only the person’s physical presence – referred to as the “halo effect.”
System 2 (Reason) – with this one, more effort is required. An intense focus is needed and is characterized by methodical operation – what we need when the stakes are high. Characteristics of System 2:
- You need it when following the 14 step instruction manual for assembling something you purchased
- Its slower and requires a conscious effort, not intuition – examples: complicated math or searching for a friend in the crowd of sixty-thousand football fans at a big game
- It doesn’t dispute what System 1 presents; rather, it is the “endorser” of how System 1 seeks to categorize your world.
- It affects your judgement by focusing on the content of a message rather than it’s relevancy
- Dramatic disasters create “anchors” that create fear – example: when we see on the news that someone was bitten by a shark we may not want to get back into the ocean, when more threats exist from common risks like strokes and asthma
- It affects our “hindsight bias” – the distortion of reality that occurs when we realign our memories of events to line up with new information
Dr. Kahneman postulates that we humans do not think rationally, despite economic theories that argue otherwise. He says our “two selves” evaluate our life experiences very differently:
- Our “experiencing self” lives our life
- Our “remembering self” appraises our experiences that we use to decide our future
The “narrative fallacy,” is our mind’s predisposition to the tangible instead of the theoretical. We extract meaning from stories that highlight things like virtue and skill, and we discount the role of luck and statistical factors.
Kahneman says to beware of what experts say where there are a greater number of variables, especially those that have an element of luck to them. Some of what appears to be an “expert option” by a bonafide expert, could be a quick answer to a difficult question. Our System 2 is unable to detect that the expert could be operating from a position of intuition, which may be flawed.
We also have a tendancy to suffer from the “endowment effect”. This is what happens when we own something, even if we own it briefly. We have a propensity to overestimate its value relative to the value of things that we don’t own, something homeowners do with great regularity.
The practical application of this book: Understanding how these systems work can help us:
- Realize that we’re not as rational as we think – that we need to establish rules to protect ourselves
- Make better choices by seeking out the right professionals to help us make the right choices (CPAs, Financial Advisors, Business Consultants and Coaches, etc.)
- Understand the anatomy of a good decision…
- Knowing the source of the information and its validity
- Understanding its context – how its framed
- Checking our confidence level with our decision
Don’t just blink…THINK!
My Favorite Quotes:
- “Most of us view the world as more benign than it really is, our own attributes as more favorable than they truly are, and the goals we adopt as more achievable than they are likely to be.”
- “The experiencing self does not have a voice. The remembering self is sometimes wrong, but it is the one that keeps score and governs what we learn from experience, and it is the one that makes decisions.”
Bill Edmonds is an “Outside-Insider” (an Executive Coach and Consultant) who works with leaders to help them reach their full potential by specializing in areas of organizational and personal development. He spent 24 years with Merrill Lynch until his retirement in 2014, where he led a $100+ million per year revenue wealth management business unit as a Director with the firm.
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