In the 1970s, the future Nobel Prize-winning economist Daniel Kahneman and the researcher Amos Tversky sought to understand irrational decisions made in the economic sector. They theorised the concept of 'cognitive bias' and highlighted our profound irrationality. I have always thought of myself as a Cartesian and logical person. Reading System 1, System 2(Thinking Fast and Slow ) shook my certainties. It is certainly the book that has served me most as an entrepreneur. Here is a modest summary with my comments.
In this article discover :
- The two systems that co-exist in your brain to process information
- Why you shouldn't (always) trust your instincts
- The most important lesson of Kahneman's work
In Introduction to Psychoanalysis, Freud explains that humanity has suffered three narcissistic wounds:
- Copernicus' observation that the earth is not at the centre of the universe.
- Darwin's discovery of the animal ancestry of Homo Sapiens, which is only one species among others.
- And finally, the highlighting of the role of the unconscious by the psychoanalytical movement, "the ego is not master in its own house", Sigmund Freud.
Half a century later, Kahneman and Tversky inflict a fourth narcissistic wound on humanity by highlighting our difficulty in making rational choices. But what is the origin of this one?
Two systems co-exist in our brain to process information and make decisions.
The first(fast thinking) is the intuitive, emotional and automatic way of thinking. You use it every day without realising it to navigate our environment. It is unconscious.
Think of all the micro-decisions you make every day without realising it: choosing your clothes or going to the office. System 1 is also responsible for your unconscious reflexes, such as dodging a ball that is thrown at your face.
In contrast, the second mode of thinking(slow thinking) is a deliberate and conscious effort to think. It occurs when we have to solve complex or new problems.
Let's take a concrete example. Try to solve the multiplication 24 x 12. The answer does not come naturally to you, you have to make a conscious effort to get the answer. Kahneman discovered that this effort is even visible! For a brief moment, your pupils have dilated to the use of system 2 due to the adrenaline(source).
The human body always seeks to minimise the cognitive effort to accomplish a task (see our article on habits on this subject). This is why even when faced with complex problems, System 1 automatically kicks in and offers an intuitive solution. The problem? This solution is very often wrong. System 1 is prone to systematic errors when it comes to logical and statistical questions.
Let's take a concrete example with a short problem. Read the three instructions below.
- A bat and a ball cost 11€ each
- Knowing that the bat costs 10€ more than the ball
- How much does the ball cost?
What is the first answer that comes to mind? Write it down, and now take a piece of paper to solve the problem.
Your system 1 shouted out the easy answer: €1. But when you thought about it, you realised that this was not possible. If the ball is worth £1, the bat is worth £11 and the sum of the two is £12, not £11. The correct answer is €0.50.
In a study of several thousand students, 50% gave the wrong answer at the prestigious universities of Harvard, MIT and Princeton. For less selective universities, the rate rose to 80%.
Still not convinced? Here are some more examples from Shane Frederick's Cognitive Reflexion Test (link):
- If it takes 5 minutes for 5 machines to make 5 widgets, how long would it take 100 machines to make 100 widgets?
- There are water lilies in a pond. Every day the area covered by the water lilies doubles in size. If it takes 48 days for the water lilies to cover the whole lake, how long does it take for them to cover half of it?
The first key lesson of Thinking Fast and Slow is therefore: if you want to make rational and informed decisions, you must systematically go beyond your first intuition. Make a (painful) conscious effort to analyse the situation and weigh up the various arguments.
Is the will an infinite faculty or does it have a limited reservoir? Is it possible that the mere sight of a banknote makes you more selfish? Is it rational to stay at the cinema even if you don't like the film? I will answer these questions in the next article where we will explore "cognitive biases".
To make sure you don't miss any of our articles, subscribe to our newsletter and receive a monthly summary of our top stories!
Introduction to psychoanalysis - Sigmund Freud, 1916(extract)
Pupillary Heart Rate and Skin Resistance Changes During a Mental Task - Bernard Tursky, David Shapiro, Andrew Crider, Daniel Kahneman,1969(source)
Cognitive Reflection and Decision Making - Shane Frederick, 2005(link)
Attention in delay of gratification - W. Mischel, E. Ebbesen, 1970(link)
