Tag: decision making

As promised last month, I will spend a few blog posts summarizing Thinking, Fast and Slow by Daniel Kahneman. Before diving into the heuristics, biases and processes that he and his colleague Amos Tversky identified, it is important to understand why he wrote the book and why it is so useful. Fortunately, he largely does this in his introduction so it is a great place to start.

Let’s not beat ourselves up but make ourselves better

First, Kahneman points out that the goal of his research is not to prove we are idiots but to help us minimize bad decisions. Understanding flaws in human decision-making is no more insulting or denigrating than writing about diseases in a medical journal belittles good health. Rather, our decision-making is generally quite good, most of our judgments are appropriate most of the time, but there are systemic biases that if we understand can make our decision-making more effective.

By understanding Kahneman’s work, you will be better able to identify and understand errors of judgment and choice, in others and then yourself. As Kahneman points out, “an accurate diagnosis may suggest an intervention to limit the damage that bad judgments and choices often cause.”

Is our judgment flawed?

At its roots, Kahneman began his career trying to determine if people consistently made biased judgments. Long story short, we do.

One example drove this determination home to Kahneman and Tversky and probably will to you also. Early in their collaboration, both Kahneman and Tversky realized they made the same “silly” prognostications about careers that toddlers would pursue when they became adults. They both knew an argumentative three year old and felt it was likely that he would become a lawyer, the empathetic and mildly intrusive toddler would become a psychotherapist and the nerdy kid would become a professor. They, both smart academics, neglected the baseline data (very few people became psychotherapists, professors or even lawyers compared with other professions) and instead believed the stories in their head about who ended up in what careers was accurate. This realization drove their ensuing research, that we are all biased.

How understanding Kahneman’s work impacts the world

The broad impact of Kahneman and Tversky’s work drives home it’s importance to everyone. When they published their first major paper, it was commonly accepted in academia that:

1. People are generally rational, and their thinking is normally sound
2. Emotions such as fear, affection and hatred explain most of the occasions on which people depart from rationality

Not only did these two assumptions drive academia (particularly economics and social sciences) but also their acceptance often drove business and government decisions. The work laid out in Thinking, Fast and Slow, however, disproved these two assumptions and thus drove entirely different decisions to generate strong results.

Scholars in a host of disciplines have found it useful and have leveraged it in other fields, such as medical diagnosis, legal judgment, intelligence analysis, philosophy, finance, statistics and military strategy. Kahneman cites an example from the field of Public Policy. His research showed that people generally assess the relative importance of issues by the ease with which they are retrieved from memory, and this is largely determined by the extent of coverage in the media. This insight now drives everything from election strategy to understanding (and countering) how authoritarian regimes manipulate the populace.

Kahneman and Tversky were also careful to ensure the subject of their experiments were not simply university students. By using scholars and experts as the subject of their experiments, thought leaders gained an unusual opportunity to observe possible flaws in their own thinking. Having seen themselves fail, they became more likely to question the dogmatic assumption, prevalent at the time that the human mind is rational and logical. I found the same myself and am confident that you will also. The idea that our minds are susceptible to systematic errors is now generally accepted.

Why it is called Thinking, Fast and Slow

While Kahneman and Tversky’s early work focused on our biases in judgment, their later work focused on decision-making under uncertainty. They found systemic biases in our decisions that consistently violated the rules of rational choice.

Again, we should not discount our decision-making skills. Many examples of experts who can quickly make critical decisions, from a chess master who can identify the top 20 next moves on a board as he walks by to a fireman knowing what areas to avoid in a burning building, experts often make critical decisions quickly.

What Kahneman and Tversky identified, though, is that while this expertise is often credited with good decision making, it is more of retrieving information from memory. The situation serves as a cue or trigger for the expert to retrieve the appropriate answer.

This insight helps us avoid a problem where our experience (which we consider intuition) does not actually help but hinders. In easy situations, intuition works. In difficult ones, we often answer the wrong questions. We answer the easier question, often without noticing the substitution.

If we fail to come to an intuitive solution, we switch to a more deliberate and effortful form of thinking. This is the slow thinking of the title. Fast thinking is both the expert and heuristic.

Example from our world, The Allan Mistake

Many of my readers are experienced “experts” from the mobile game space, so I will start with a hypothetical example that many of us can relate to. In this example, Allan is the GM of his company’s puzzle game division. He has been in the game industry over twenty years and has seen many successful and failed projects. The CEO, Mark, comes to Allan and says they are about to sign one of three celebrities to build a game around.

Allan knows the demographics of puzzle players intimately and identifies the one celebrity who is most popular with Allan’s target customers. Nine months later they launch the game and it is an abysmal failure. Allan is terminated and wonders what he did wrong.

Allan then looks over his notes from when he read Thinking, Fast and Slow, and realizes his fundamental mistake. When Mark came to him and asked which celebrity to use, Allan took the easy route and analyzed the three celebrity options. He did not tackle the actual question, whether it was beneficial to use a celebrity for a puzzle game and only if that was positive to pick between the three. If he had answered the more difficult question (difficult also because it would have set him against Mark), he would have found that celebrity puzzle games are never successful, regardless of the celebrity. Although it may have created tensions at the time with Mark, he probably would have been given an opportunity to create a game with a higher likelihood of success and still be in his position.

Key takeaways

• Our decision making is not bad but by understanding our systemic biases we can be more efficient.
• Understanding that people are not regularly rational and that this irrationality is not driven by emotion allows us to make better decisions in fields as diverse as medical diagnosis, legal judgment, intelligence analysis, philosophy, finance, statistics and military strategy.
• Fast thinking refers to quick decisions and judgments based on our experience while slow thinking is the analysis of difficult questions.