It never stops to amaze me the brilliant human mind. As I grow older and go through life, I always wondered how we are able to make decisions in our daily lives. We make thousands of decisions on a regular day, sometimes we are able to make them fast, in a fraction of a second, and other times, we need to go through a rigorous process of self-reflection, involving as well other people; We research and look for all available sources of information that we can process in order reach a meaningful decision.
What is going on inside our minds while we are processing all this information? Do we use the same mental faculties when we do fast and slow decisions?
I heard it many times. This advice is out there everywhere…you get it from books, movies, entrepeneurs, leaders, church, family and colleagues… use your intuition and use it fast! it NEVER lies!
I believe in intuition and its power but then, why so many people who trusted in their initial intuition failed at their jobs, marriages, business ideas, you name it? Where is this intuition coming from? how do we differentiate an intuition from the automatic impulses of the brain retrieving memories of the past, connecting them together to build a clearer mental picture of the situation and taking the decision based on the past self experience on it?
Can we really trust our intuition as professionals, when making decisions at work? Are we really consciously and deliberately looking for the best possible solution to a problem, or is our mind generally more lazy and prefers to go with that gut feeling, trusting that we have enough capability and experience to reach an important decision?
Interestingly enough, Economists somehow have often neglected the “intuition” factor and for many decades, the Max Weber´s theory of Rationality has been widely used to explain and model the social and economic behaviour with the main premise that an individual has definite preferences among a series of alternatives where – by using the available information, probabilities and events available – would then act consistently in chosing the best decision.
Rationality has been used as a main assumption and it has been the most used cost-effective method for decision making and policy making in a range of fields like Political Science, Business, Philosophy and Sociology. This theory, assumes that people make choices to maximize their happiness or utility and they choose them consciously and using their logical reason; it is the sum of choices made by individuals what makes the total “behaviour” more predictable.
Daniel Kahneman, winner of the Nobel Prize for Economics and the author of the famous book “Thinking Fast and Slow”, together with Amos Tversky, are one of the main critics of the Rationality theory and in 1979 they released the “Prospect Theory” approach, which states that people mainly make choices by adding weights to the alternatives depending on the level of risk they assign and the sense of gains and loses. Certain biases in our thinking are then created because often the fear of regret or loss predominates – a hurtful emotion-and this plays a big role in influencing the outcome of the decision.
In order to better explain what is going on in our minds when confronted with a situation that requires a decision, Kahneman introduces us in his book to two characters that “live” inside our minds: System 1 which is the one that is in touch with our daily happenings, and the one that continually interprets our current “reality” by constructing a coherent interpretation on what is happening in our lives, and System 2, which mainly deals with the effortful mental activities that demand increased attention, like for example when trying to solve a complex mathematical problem. This two “Systems ” are of course fictitious characters, but on this way, it makes it easier for us to recognise the two main functions of our thinking.
So what are the main functions of our “System 1”?
- Generates impressions, beliefs and inclinations
- operates quickly and automatically
- creates a coherent pattern of ideas that are in our associative memory
- neglects ambiguity and surpasses doubt
- focus on existing evidence and forgets absent evidence
- is loss averse: responds more strongly when losing than when winning something
System 2 operations are more effortful but one of its main characteristics is laziness, therefore it will be reluctant to invest more effort than strictly necessary. Activities that impose high demands on System 2 require a high degree of self-control, and self-control can be for many exhaustive and unpleasant, so our mind tries to avoid it. Therefore is evident that in our daily undertakings, we tend to use much more our System 1 than our System 2, exposing ourselves to many bias in our thinking than we are actually aware of.
Some of the main biases that we experience in our daily and professional lives, identified by Kahneman and Tversky are:
Planning fallacy: This one is very common in business. This is related to the phenomenon of taking false predictions of the estimated time it will take to complete a specific task. This is often the result of overconfidence in knowing results on similar projects due to past experience and overestimation of actual tasks versus estimate at completion. The subsequent effects are, as project managers well know, an overrun plan often leads to sunk costs and benefit shortfalls.
Priming effect: Mechanism of association between words, concepts, feelings and situations. Most of the time, people is not really aware that their actions are influenced by events that they associate in their memories unconsciously. (e.g. Think about BANANA and VOMIT… did you temporarily felt a rejection of eating a Banana right now?) this is a great tool for Marketers!
Cognitive illusions: Illusions of thought and the famous Müller-Lyer illusion. What do you see? is the horizontal line on the bottom longer than the one on the top?
Illusions of remembering and illusions of truth: The Psychologist Larry Jacoby describes this phenomena in great words ” The experience of familiarity has a simple but powerful quality of ‘pastness’ that seems to indicate that it is a direct reflection of prior experience”. Something to watch out for, is that this is an effective way to make people believe in false information via frequent repetition, because often familiarity is not easily distinguished from the truth.
We deliberately look for causes and intentions: Our brains don’t like the randomness of life, therefore, we are looking automatically for causes and explanations that make sense, and this often shapes our thinking about certain situations.
What you see is all there is: As our brain capacities to retrieve information are finite, we look consistency in the information we have available in order to make a good story of a situation, regardless of its completeness. Combining limited information with cognitive ease (i.e. familiarity), make our story come across as true. This is mainly why according to Kahneman, we are able to think fast and how we make sense of our complex world with only partial information.
Overconfidence: The level of confidence that a person has in their beliefs relies on the level of quality of the stories and how well they explain what they see, even if what they see is just very limited information.
Framing effects: Different ways of showing information can change our decision and how we think about a situation. (e.g. if you are on diet, and you see two products, one saying ” 80% fat-free” and the other saying “contains 20% fat” you will most likely choose the first one even if the information is exactly the same). A similar situation can happen when you see two advertisements; one with bold letters and one with blurry or small letters. Because the brain can pick up more quickly the bold letters, you will refer this statement as true as compared to the other.
Substitution and heuristics: When we are asked a particular difficult question like: How happy are you now? our mind substitutes this question with something like “What is my mood right now? For our mind, it is easier to generate quick answers by replacing the difficult question with a simpler one without making our lazy System 2 work too hard.
This story becomes more interesting, when you add the phenomenon of “intensity matching” to the equation. If you would put a dollar value to the intensity of your feelings, you will probably be willing to spend more money on things that will increase the feeling of being in a good mood which will increase your belief that you are becoming more happy with that transaction.
Affect heuristics: Judgements and decisions are directly guided by feelings of liking and disliking with little deliberation or reasoning. This is easily observable in the political scene. It is very likely that your political preference determines which arguments you find more compelling. If System 2 would enter into the picture, you would have to do a thorough research of all arguments, make comparisons, build probabilistic scenarios and choose the most “rational” argument regardless of the candidate.
Sampling and “Small numbers” effect: In the professional and scientific worlds, we know for a fact that when doing research, larger samples are more reliable than smaller samples. However, in our daily life, we tend to ignore the sample size and let our intuitive mind make a conclusion. If you read a business report that says: “Out of a questionnaire made with 200 young customers, 80% loved our product”. Your immediate interpretation would be that the product is successful among Millennials. You could change the number to 2,000 or 20,000 and you would probably remain indifferent, because you are more interested in the story you just interpreted from the statement and less conscious about the sample size.
Availability and affect: What is it more likely to happen, that a person dies by having diabetes or by a car accident?
In a famous study made by Paul Slovic, Sara Lichtenstein and Baruch Fischhoff, and cited by Kahneman, revealed that public perceptions of risks were heavily influenced by media coverage. In our previous example, death by accidents was judged to be 300 more likely than death by diabetes; however the death by diabetes is actually 4 times bigger! Of course, you hear more often about car accidents in the media than from episodes of death by diabetes.
Our perceptions of risk and our limited ability to deal with small risks makes us either ignore the risk all together, or put too much attention on it. This results in that we are often prone to exaggerate the consistency of coherence of what we see!
So, how can we detect which situations make us more susceptible to “go with the flow” in System 1 mode rather than activate a more conscious System 2 approach?
- When we are multitasking
- when we are in a good mood because of a thought of a happy experience
- when we possess a moderate knowledge about a specific topic but this is the area we have more experience, so we trust our knowledge gained instead of asking true experts
- when we are naturally inclined to believe our faith and intuitions
- when we are made feel powerful or important
Does that mean that we have to be in an alert and depressive mode all the time to make better decisions? Should we ignore our faith and gut feeling?
Is there really “no cure” for our biased thinking?
If subjective confidence is not to be trusted, how can we evaluate the validity of a judgement?
According to research done by Gary Klein, the higher the unpredictability of the events to forecast, the more the failures we tend to make. So when we acquire sufficient skill in an environment that is sufficiently regular to be predictable and if we get the chance to learn the skill under prolonged practice in this predictable environment, it will reduce significantly the probability of biases and mistakes. The gut feeling can be generally trusted, when it is done in an environment that has been thoroughly studied and where we know we have sufficient knowledge and capability to respond in that specific environment.
It is important that we learn to take a better self-control and maintain an alert mind to potential biases when doing important decisions at work and in our daily lives in general. If we pick the wrong choice in an unpredictable environment, most likely our learning experiences will be also biased.
Although it is inevitable that we fall in the trap of our own bias, which are invading our conscious mind everyday, there are some things that can be done to improve the way we make decisions:
- Keep a critical mindset. Even if you are an expert in your area, make an effort to verify and validate all possible information available
- avoid relying in the past to look for solutions. Most of the times, those solutions are already obsolete. Focus on opening new alternatives and envision the Future
- forget about the “Sunk costs”- They are gone! Don´t stay in a failed project, bad marriage or bad job because of the “Investment done so far”- Move on!
- be humble, and open to new ideas and perspectives
- try to look for a collective decision-making, even if it takes more time,when very important decisions have to me made and where many people will be affected by the outcome
- if you have a strong belief or intuition, try to find sustainable information supporting your belief, before making the decision
- avoid the temptation to be “right” at all times and stay true to the facts
Biases in our decisions does not affect our intelligence. Most of our actions and judgements we make are appropriate most of the time, but being aware of the existing conscious bias and acting upon them will definitely increase the quality of your decisions!
“Thinking is the highest and most powerful faculty given to Humans” B.Proctor