Nobel Prize-winning behavioral economist Daniel Kahneman described the machinery of thought that divides our brain into the two systems that determine how we think, make decisions, and assess risk. Learn about how to define system 1 and system 2 thinking and match each system to appropriate situations to improve judgment.
- From 1971 to 1979, psychologists Kahneman and Tversky published mindblowing studies that busted our assumptions about judgment and decision-making. This field, behavioral economics, revealed that how we think isn't as rational as we thought. Kahneman, the winner of the Nobel Prize in Economics, described two systems that drive the way we think. System 1 and System 2. System 1 is fast, automatic, efficient, and often unconscious. It's also prone to misleading biases and judgment errors. Your intuition? Yep, System 1 thinking. For example, when you see my face, as angry. When you see this one plus one and a number comes to mind or when you have an immediate bad feeling about the proposal Lesley just made, that's System 1 thinking. System 2 is slow, effortful and controlled. When you see 27 times 19, you're using System 2 thinking to come up with 513. When you search your memory, "What's that surprising sound?" When you monitor your own behavior in a meeting or when you look for a financial discrepancy, you're attentive and conscious of the process. That's the hint. It's System 2 thinking. The important point, different situations require different types of thinking. But this isn't as natural or as obvious as it sounds. Match the appropriate type of thinking to the situation and you'll reduce judgment errors. Both types of thinking are important, but poor judgment results when the type doesn't match the situation. This is usually the result of using System 1 thinking when System 2 thinking would be better. For Roger, a director of investments, his favorite time to judge deals was on his drive home, when he could clear his mind, tapping his intuition. However, this wasn't working for his team. The problem, intuition is System 1 thinking and judging deals requires System 2 thinking, a mismatch. Here's what Roger did and what you can do in System 2 situations. Number one, stop multitasking. Fine to get ideas while driving or walking, but afterward, challenge judgments and assumptions with analysis. When you're not doing anything else. Number two, turn off notifications during meetings. Roger and his team did this during deal-analysis meetings. No more suspicious delays during conference calls hinting that someone's working on something else. The result, an increase in the quality of deal analysis and in the quality of deals closed. Number three, get sleep. Science is clear, when you're tired, judging big decisions that require System 2 thinking, makes you more likely to rely on System 1. Number four, don't judge on an empty stomach. Researchers even found that hungry judges fell back on the easier default position of denying requests for parole. Number five, avoid situations that deplete self control. Long meetings, conflict, and complex information. System 2 requires self control. Roger started providing required reading background information for each deal, days before the analysis meeting. Wiser analyses resulted from less emotion and greater reliance on evidence. Match the type of thinking to the situation. You'll avoid judgment errors that result from thinking fast when you should be thinking slow.
- Comparing critical and strategic thinking
- Minimizing bad judgements
- Recognizing cognitive bias
- Using counterfactual thinking
- Overcoming loss aversion
- Avoiding logical fallacies
- Creating a culture of critical thinking