The psychologist and Nobel laureate in economics Daniel Kahneman explains the workings of our minds and how the two systems that direct our thoughts work. System 1 is fast, intuitive and emotional. System 2 is slow and more logical. According to the book, understanding how these two ways of thinking work can help us make right personal and professional decisions. The author reveals where we should or should not rely on our intuition and how we can benefit from slow or fast thoughts. He shows us how our choices are made and how we can make decisions more consciously.
Come with the 12min team to understand how our minds work and learn to make better decisions!
Our mental activities are controlled by two different systems - the intuitive (system 1) and the rational (system 2). The intuitive system is fast and produces almost instantaneous responses. The second system is programmed to think, analyze, evaluate and then respond. It is normal to believe that our decisions are directed by the rational system. But the truth is that the intuitive system, which is virtually involuntary, is the basis for most of our choices, even those we make using the rational system.
System 1 is involuntary thinking, which draws conclusions using relevant knowledge. For example, when you see 3x3, you automatically think of the correct answer.
You have these automatic responses several times a day, and most of the time you are not even aware that they are results of System 1 working on your thoughts. However much you can control if you want, some activities work automatically thanks to system 1, such as blinking or walking.
System 2 needs your full attention to complete the task. Usually, when you do something that is not an automatic or reflexive reaction, System 2 acts. For example, if you are looking for a friend in a crowd or singing a song.
In several situations, the systems work together, when you are paying extra attention while driving at night for example, or when you strive to be respectful even while being nervous. You are not aware, but your mind is working with both systems. And in reality, when you perform any mental activity, it is very difficult to find out whether System 1 or System 2 is in action.
Remember this: system 1 runs on autopilot all the time, and system 2 needs to be called in to act. System 1 gives you signals (impressions, feelings, intuitions) based on the ideas and beliefs formulated by the system 2. When system 1 can't solve a problem, it calls system 2 to help.
Why is it important to know the difference between systems? System 1 can jump to conclusions and can make mistakes in many situations.
Calm your thoughts with System 2 and you will not only increase the likelihood of thinking more accurately and appropriately but will also think more efficiently. For example, when you only use System 1 when looking for a relative at the airport, you look over all the people crossing your path, looking for a familiar face. But if you use System 2, you can consciously filter those people who have black hair or glasses, since your relative does not have any of these characteristics. Also, the search is faster and more efficient.
Our mind is conditioned to be always optimistic even when there are no guarantees of good results. When we take a risky attitude, we can still demonstrate confidence because of our mistaken optimism. It hinders our rational ability to calculate risks, learned from past mistakes or from the advice of experts in the field. This feeling of illusory optimism prevents us from investing adequate time and planning. Optimism gives us the false impression that we have great control over the situation, but this may not be true.
While lack of objective thinking is dangerous in many situations, subjectivity helps us make good decisions and judge things correctly. Think of subjectivity as the element that keeps things balanced and puts them in perspective. Notice how looking at this situation in a purely objective way can change our perspective: imagine that a person who earns $100 a week loses a $50 bill. The $50 represents a significant loss to her. If a person who earns $30,000 per week loses the same $50, that loss would be relatively insignificant. It is essential to look at this situation in a subjective way since people's points of reference are very different.
What you need to learn is that pure logic and facts should not always be used to reach conclusions or judgments. A person's circumstances, mood, and other factors must also be considered.
External influences significantly impact our judgments and choices, even if we are not aware of them. Our mind responds to situations based on our previous experiences. For example, you probably think you made a good deal by buying a product that went down from $40 to $35.
However, you would not think the $35 was a good deal if you saw the same product sold at $30. Similarly, you tend to dislike a person when your first interaction with him was unpleasant because your mind is prepared not to like him.
Another influence that affects our thinking processes is our emotional response. When we are exposed to bad news on specific subjects, we usually let our emotions impact our judgment. For example, if we are reading the news about an airplane crash, we begin to feel that planes aren’t safe, even if the crashes are extremely rare. Our minds unconsciously begin to believe it, even if it is not rational. Understanding how and where this happens gives us the power to lessen this reflexive tendency and make better, more logical, and more accurate decisions.
For example, imagine that you are doing a multiple-choice test and there is a question with four answer choices. If you are not sure about the answer, you probably will mark the one that seems most familiar. That is because our mind automatically assumes that what is familiar must also be true. If you use your system 2, you will be much more likely to use logical reasoning and come up with an answer using a much more practical process. In the same way, if you apply rational thinking to think of aircraft crashes, you will realize that the chances of it happening to you are relatively low.
Emotions play an essential role and impact our decision-making process. Stereotypes, assumptions, and intuition are very common methods of decision making and show the impact these heuristic processes have on our choices.
System 1 thinking process calculates losses, gains, risks, and rewards, and inserts emotions into results. Whether out of fear or regret or to get the impression that we are experts, our emotions influence our decisions in a meaningful way.
Emotions also impact our decisions and judgments in other ways. We can respond to different situations depending on how they are presented, even if this is unconscious. That means that the circumstance or event that has the most emotional connection with us is usually the one that grabs our attention. That is because the situation calls an associative memory through system 1. Our mind processes what associative memory transmits and makes decisions and not all important facts can have the importance they should have.
For example, doctors may be more likely to opt for a procedure if they know that survival rate is 90% than if they know the mortality rate is 10%. The association made in this case is survival, which is a positive result for the doctor. That makes system 1 give more weight to positive decisions. We must force our system 2 to analyze the real facts for our decision making, rather than letting our emotions take over. Only in this way can we overcome this influence in our choices.
When we are confronted with a situation, the typical human response is to choose the easiest way, that is, to evoke our system. 1. Our brain tends to follow the path that represents the least resistance. So even when you are faced with a situation that looks different, your brain will accept the less confusing explanation.
Doubting something or just not believing in something is a task that requires a lot of effort for our brains. So system 1 tends to present the situation in the best possible way: in a way that you can believe.
In anxious individuals System, 2 is usually more functional. These people can think and analyze everything in excess and doubt every decision they make. Still, these individuals also depend on system 1 in many situations, even if they are not aware of it. That happens when they choose the easy way out. For example, when you have two different possibilities of routes to get to a hotel, you instinctively choose the most familiar route.
This urge to choose the easiest path may mean that our first instinct is naive. System 2 only comes into play when you are in a very confusing situation or when you realize that a belief is false. It slows down your mental process and generates analytical thinking and logical reasoning. We need to encourage our minds to look beyond influences and patterns. Observing the available facts, ignoring the feelings, impressions, and hunches.
Not everything that happens makes sense, and we can not always provide a rational explanation for everything. But our mind tries to create a story to make each situation more plausible. The fact is that for things to be easily understood, our minds create illusions. The information we believe may in fact actually be a fiction created by the mind.
This invented story can then become what we call "intuition." As a result of this strong feeling, you could end up taking a stand in a certain situation, which is completely contrary to the real facts. This misperception is a problem because when decisions or judgments are not based on real facts, they may be inappropriate or wrong.
Does this mean that feelings or intuitions are just fallacies? Not always. Intuition exists, especially the so-called "expert intuition." However, this feeling or intuition arises from a great experience in your area of expertise. For example, a very experienced physician may intuitively "feel" that his patient has a particular problem. It may not be apparent to another doctor who is relatively new to the practice.
This type of intuition arises from the reflections of the mind, from the instinctive recognition of familiar patterns. Intuition can be trusted when it comes from a specialist in the field, who provides enough predictability to create such standards. In the case of a physician, who’s seen many patients with similar symptoms and these experiments lay the groundwork for a seemingly intuitive diagnosis.
We must then be careful to depend only on our intuition when we have a solid basis for trusting our feelings. For example, a mother's intuition can be trusted because she knows her child very well. In contrast, an intuitive feeling that someone you know may suffer a car accident is probably just an irrational fear.
Daniel Kahneman won the Nobel Prize in economics for this theory that challenged the old concept called "value for money," which economists have backed for years. The theory of perspective states that:
The value of money can be measured only by the reference point of each person;
Each person is not sensitive to an identical degree of monetary loss;
Nobody likes to lose money.
Thanks to our 'System 1' response, the fear of losing money outweighs the satisfaction of earning money virtually every time. This fear induces our mind to miss great opportunities because we are against the prospect of loss. That is why an investor may hesitate to sell stock even though it is clear that the price is falling. His aversion to losses prevents him from selling when the price drops below the value he originally paid for the stock, letting the price drop further until the investment is truly in the red.
Another demonstration of this loss aversion is the 'resource effect', which says that humans attach more value to things simply because we possess them. We add a fictitious value to things we already have because when we need to sell them, we tend to look for a value that is far greater than the real value. For example, if you were trying to sell an old watch that belonged to your father, the price you would expect for it could be far bigger than how much a fair purchaser would be willing to pay. You unconsciously add a fictitious value to the actual value of the watch because of your attachment to it and the association it has with your father. This association has no value to the buyer, so he does not see a justification for its price. Our inherent fear that we are losing something motivates us to compensate for this loss by asserting a higher value.
The 'perspective theory' highlights the exciting fact that we can make different decisions based on the same events, depending on how the option is formulated. For example, an investor who has a choice between an absolutely certain profit of $1,000 and a 50% chance of a profit of $2,500 can choose the first. Probable profit from the latter may be better, but the way the choice is presented makes the guaranteed profit of $1,000 the most viable option. However, present the same probabilities, but differently and the decisions will also be different. The same investor has a choice of a definitive loss of $ 1,000 against a 50% chance that he will not lose anything or that a $2,500 loss occurs, choosing the latter demonstrates greater risk behavior when compared to the previous example.
The 'theory of perspective' advocates that the decision-making process takes place in two stages: editing and evaluation.
The editing stage occurs when the possibilities are analyzed, and this is where the presentation can have a huge impact. The evaluation stage happens when we choose the possibility that offers the maximum value. But keep in mind that this value is determined by loss or gain, which will need to be taken into account much more than the outcome of the decision. That is because, as we saw earlier, our response to 'system 1' has a strong aversion to financial losses.
In fact, this loss aversion is typically stronger than the attraction we have for profit opportunities. We can avoid making a decision that will clearly result in a loss, even though it is equally evident that procrastination will produce even less favorable results for us.
When you are asked a question that encompasses many other issues, your brain tends to use panoramic vision. To make things easier, it focuses on a specific subject or adjusts the question to focus on a singular aspect, a period of time, or an incident. That can significantly skew the response you give or the way you understand the question.
The brain's tendency to switch to panoramic view can also be seen in the way we approach our daily lives. The brain tends to focus on what we want and where we hope to be in the future, and that influences our decision-making process. Naturally, we are more likely to make decisions that bring us closer to what we want in the future. For example, if your dream is to sail around the world on a yacht, you may be inclined to invest in a big boat if you suddenly have money left over. You can even put off renovations that could increase the value of your home to buy the boat, just to achieve your dream.
But even if you achieve everything you ever wanted, you may still not feel completely happy. That is because your mind cannot sew all your past life experiences, your present situation and your mental perceptions into a cohesive figure that allows you to weigh if you are happier or sadder at any given time.
The truth is that no single event, situation or achievement can make you "happy". The state of happiness depends greatly on several and numerous factors, all joining in its favor. You might think, for example, that you would be happy at your job if you only had a higher salary. But even if your boss gives you an unexpected salary increase, you will not immediately love your job.
There are, of course, many other factors at play that may be keeping you from being happy: your satisfaction with your job, the feeling that you have worked more than your peers and your relationship with your peers, for example. Recognizing this fallacy helps you understand that even when your mind is saying things are unfavorable, the reality may be completely different! We need to abandon the panoramic view in favor of a more holistic view of our situations and experiences.
We are made up of two distinctive beings - the experience we pass through (the being you experience) and the memories that we subsequently create and keep from the experience (the being that it remembers). This duality causes cognitive illusions in which the actual experience we have may be obscured by the memory that is left behind. Typically, you would remember a rendezvous dinner that ended badly as a horrible experience, even if the first hour preceding the terrible end was incredibly romantic. A mediocre meal that was accompanied by a spectacular dessert can remain in your memory as a fantastic meal. One peculiarity of this heuristic is that the experience duration does not seem to make any difference. The memory of the experience left behind can color the experience itself, in all cases. In particular, the final portion of the experience is what is left in our mind, and that is what determines how we view that experience as a whole. It is important to say that this conclusion influences how we make future decisions. In fact, these future decisions are being made from our memories of our experiences and not our actual experiences.
Looking at this differently, we can see how this puts a powerful tool in our hands: memories. By ensuring that we constantly create valuable memories of our experiences, we can encourage our minds to come out of this memory-over-experience illusion. As you begin to become aware of your experiences as you go through them, you begin to consciously reflect on what you are doing. By doing so, you create a set of memories that are more in sync with actual experience and are therefore more faithful representations of what happened. These memories now also form a good basis for future decision-making. That is a critical factor to remember - balancing our memories (e.g., our version of what happened) and our experiences (e.g., what actually happened) is very important. Choosing the right balance between these two is precisely what we need to do to improve our ability to make the right decisions and to subjugate the influences that can distort our decision-making capabilities.
System 2 is called to act only when we are in a situation or event that requires some complex thinking or some analysis. Even when we are constantly using System 2, System 1 can still distort our decisions. The author presents several heuristics to show how we react irrationally in different situations. That happens because we are unconsciously influenced by a variety of external factors and life experiences. When we understand more about this unconscious influence, we can realize how irrational decisions occur and what we must do to avoid them. To make rational and sensible decisions, we need to be wary of influences that can impact our system 1 and we must also involve our system 2 in the process. We must remain aware of our experiences to be sure that our memories are following reality. Only then will we base our judgments and decisions on true facts and experiences.
12min tip: If you want to learn even more about how our brain works, we also recommend reading Daniel Goleman's "Focus" microbook.
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