Thinking and Deciding – Fast and Slow

Thinking and Deciding – Fast and Slow

by Katherine D. Cannon, PhD, CFP®

For delving more deeply into thinking and decision making and where error and bias vulnerability lies, I found Daniel Kahneman’s book Thinking Fast and Slow an excellent guide. As I explore his work, it is as if the mind is seeing itself in a mirror. You may find as you read this you see your own decision making processes.

At the core, the mind does its job beneath the threshold of conscious awareness. Impressions and thoughts pop into conscious experience without us knowing how it happens. Examples are limitless—a thought or memory presents itself, this initiates action, we sense a friend’s irritation, we smile at a stranger as a gesture of friendship, or avoid eye contact in a conversation. Most mental work that produces impressions, intuitions, and many decisions goes on in the silence of our mind—rapidly and with minimal effort—to all appearances, ‘automatic.’

Often during this normal mental processing, shortcuts or assumptions lead to bias, judgment errors, and other less than optimal choices. In this blog posting, we’ll consider the mind’s intuitive power and the more deliberative process of judging and decision making. Importantly, we’ll look at how to identify and understand the context in which errors and bias occur.

System 1 and System 2 Thinking Modes
Daniel Kahneman, co-recipient of the 2002 Nobel Prize in Economic Sciences for his major contributions in cognitive science, builds a mental model with two metaphoric agents. He calls these agents System 1 and System 2; they respectively produce fast and slow thinking. This breakdown systemizes thinking and considers where defects and biases in thinking occur. Kahneman calls these mental shortcuts or assumptions heuristic. Below the overviews of System 1 and 2 are discussions of a number of heuristics that cause muddled thinking.

  • System 1 – the intuitive operates automatically and quickly, with little or no effort or voluntary control. Driving a car with no traffic, reading facial responses, and recalling familiar names or phrases are some examples of System 1.
  • System 2 – the deliberative allocates attention to the effortful mental activities that demand focused attention. Comparing two TV’s for value, filling out tax returns, searching memory, and walking faster than normal all require slow thinking and focus; these are examples of System 2.

Say, you briefly stop at the grocery store to pick up some milk and you may gather a few additional items as you move through the aisles to checkout. No shopping list; a simple run through – System 1 is in full control picking up items as they flash into sight or memory. Easy – no cognitive stress or effort.

Consider another time when you’re preparing dinner to serve guests. Your shopping list includes ingredients for your chosen recipes, hors d’oeuvre, beverages, and other delectables you wish to serve. System 2 entails a well-prepared shopping list that takes cognitive effort and attention. We exert this attention and effort to achieve a desired outcome of pleasing our guests.

Cognitive Ease—Preference
Thinking fast is easy; we do it most of the time and it’s our default preferred mode. Kahneman describes the mind as lazy with its preference for the easy path. The mind’s laziness could be seen as effective resource utilization. The brain uses more energy than any other human organ and accounts for up to 20 percent of the body’s total energy. Most of life’s unfolding events are familiar and do not require the deliberative System 2.

The problem arises if we think fast when slow thinking is required. It takes cognitive work to ask “How do I know this is true?” “Who and why is this person promoting this?” We’re more susceptible to thinking fast when there’s familiarity, agreement with our beliefs, repetitive messages offered by authority figures.

The ploy of marketing is that if you hear it enough, you’ll believe it! Add an authoritative spokesperson and we have a marketing strategy. Make it easy – large clear font with clear colors, simple language, pleasing understandable references all support cognitive ease of System 1.

Beneficial note: “Am I taking the easy route – defaulting to the ease of System 1 when the effort of System 2 is required or more appropriate?”

Tired Minds Make Poor Decisions
Kahneman cites a famous study of eight parole judges in Israel that shows tiredness and fatigue results in default thinking. The judges who reviewed applications for parole all day on the average granted parole to 35% of the applicants. The experiment tracked their decisions over time along with the break periods. They took three breaks with food – mid-morning, lunch, and mid-afternoon. Two hours before the break, granting parole steadily decreased to zero immediately prior to the food break. After the break, parole was granted to 65% of the applicants! Tired, hungry judges are far more likely to fall back into the easier default position of not granting parole.

Beneficial note: Avoid making important decisions when tired, mentally fatigued, or hungry as we’re prone to make poor judgments in this mentally depleted state; we default to System 1 when System 2 is required.

Priming
Exposure to an idea ‘primes’ us to respond and act in ways associated with the prime idea without conscious intention. An example, research participants asked to read about the elderly subsequently were observed walking slower. Participants asked to smile rated jokes funnier and when asked to frown found disturbing photos more disturbing.

Beneficial note: When making an important decision or judgment you may ask, “Am I overly influenced by a recent event, conversation, or something else that is coloring my decision?”

Coherent Stories and Association
The main function of System 1 is to maintain and update a model of our personal world. This model—beneath the level of conscious awareness—defines what is normal. This ‘normality’ is expected and highly associated with the earlier experiences, actions, and outcomes that form our personal model of our world.

An example that Kahneman cites is dubbed the ‘Moses illusion’. A small number of people detect the error in this question, “How many animals of each type did Moses take into the arc?” Moses never took any animals into an arc, but animals and the arc are associated with a familiar biblical story and Moses is not abnormal in the biblical context.

It gets more extreme—as events and situations unfold the mind will go to incredible lengths to make life fit its model of normalcy and expectations. The mind seeks a coherence—a coherent internal experience that ‘makes sense’ and abides by cause-effect relationships of what is happening and why.

Intention and agency are assumed when none may exist—confusing causality with correlation. Explaining complex tragedies like school shootings and challenging pervasive problems like homelessness trigger myriad ‘coherent stories’ extremely oversimplified or untethered to reality.

Beneficial note: The mind strives to explain. And while it can be fascinating to watch the mind trying to assign agency and intention to events that may not have any basis in reality, most often we simply don’t know the cause, agency, or outcome. Not knowing is acceptable.

Confirmation Bias
Along the same line of seeking ‘normalcy and expected’, we search for and find evidence that confirms our stories, beliefs, and our understanding.

Unrecognized confirmation bias makes political discourse unsavory. A Trump supporter will find a massive body of information supporting Trump while a Trump enemy will equally put forth another enormous body of information that confirms their view of Trump. Each presentation is backed with fully documented evidence negating any opportunity for open discourse.

Discussing the need for retirement planning, an intelligent 38-year man was convinced that it wasn’t necessary to save. “My mother lost everything in 2008, so why bother.” And, he went on, “You don’t know how long I’ll live; my grandfather died shortly after retirement, so why bother.”

Beneficial note: Be cognizant of the mind seeking to confirm its stories, beliefs, and positions—it will find confirming evidence no matter how limited or irrelevant.

Halo Effect
A warm feeling or emotion we may feel toward a person, place, or thing predisposes us to like everything about the person, place, or thing. Similarly, a negative emotion promotes a predisposition to dislike everything about the exposure. The halo effect can color and override relevant qualities and include aspects we have not observed.

I found the halo effect particularly dysfunctional when making hiring decisions. Years ago, when hiring assistants I realized my liking of the applicant influenced my hiring decision. After some poor hiring decisions, I focused more on their effectiveness in the position as opposed to whether I would like to meet and chat with them at Starbucks.

Beneficial note: When meeting someone new, notice particularly the first impression of liking/disliking and check how this could influence judgment.

Affect and Emotions
Similar to the halo effect, emotions influence judgment and shape the model of our world. Preferences can cloud our judgment so that we over or under estimate risks and benefits.

Judgment—System 1 Is Not the Best Judge
Say, you want to replace an old kitchen blender, you google ‘what’s the best blender?’ You get several suggestions; best for smoothies, iced drinks, juicing, container size, price, and some small enough for travel with to-go cups. Wow!

System 1 wants to make it easy:

  • “This one really looks the best – with that big base, it’s the most powerful one for making humus.”
  • “Get the one with most possibilities; then whatever I need it’ll do the job.”
  • “Let’s make it easy – compare and shop by price.” Two choices: “The most expensive one is obviously the best.” Or, “The least priced one will do fine”.
  • “I’ll get the one my friend, a gourmet chef has.”

System 1 is prone to ignore what is relevant, incorrectly assess traits, and fall prey to its fast thinking process. System 2 does the hard work: “How do I use this blender and how often? What is my storage space to store it? How much do I wish to spend?” System 2 takes time and cognitive effort.

Beneficial note: Be particularly careful when feeling overwhelmed with options and possibilities since fast thinking can easily take over our decision.

Substitution
When confronted with a challenging problem that requires a decision and action, the tendency may exist to make it easier by substituting a simpler question.

Instead of estimating the probability of a certain complex outcome we rely on an estimate of another, less complex outcome. For example, a candidate is running for the primaries. Rather than asking the question whether the person is a good candidate with the appropriate skills and experience, System 1 asks, “Does this person look like a winner?”

I overheard a young intern commenting that one candidate was holding the railing while descending the stairs while his opponent quite easily sprinted up the stairs. His conclusion, “He’s too old to win or be a good president while she’s very fit.”

Substitution is also behavioral—a person asked if they are preparing for retirement they reply, “I have a 401(k).” That doesn’t address the greater question but lends the comfort of “at least I’m doing something.” Or if over-spending is a problem, purchasing store brands that cost less support the belief, “We live very modestly and I’m doing what I can.”

Beneficial note: Are there important areas in my life in which I’m substituting some simple behavior to avoid addressing the obvious complex issue?

Expert Intuition
Kahneman relays the story of a team of firefighters who were hosing a blazing fire in the kitchen. Suddenly the fire commander heard himself shouting, “Let’s get out of here—now!” Immediately after the team escaped, the kitchen floor fell. Later the commander reflected on how he knew to escape. He recalled his face was too hot and the fire was too quiet; intuitively he knew the kitchen was not the source. The fire was in the basement underneath the collapsed kitchen floor.

We hear stories of expert intuition: the physician with a glance correctly diagnosed the patient’s complex condition only later verified with tests; an art expert detecting forgery prior to forensics; and a chess master ‘seeing’ the chess board with the strategy for checkmate. Expert intuition accesses information beneath thinking and conscious awareness stored in memory—information that takes thousands of hours to amass—flashing into awareness as needed.

Beneficial note: Ascertaining whether the flash is expert intuition or something else. Is the ‘gut feeling of a winning stock’ informed intuition or wishful thinking and overconfidence?

The Challenge
System 1 operates instantaneous. By its nature, System 1 relies on associative memory, often intuitive, and works beneath conscious awareness. Thinking fast never turns off. The challenge is pausing to avoid System 1 bias and errors.

In contrast, System 2 requires thought and full focus, time and effort—sometimes great mental effort. System 2 is tedious, does not multi-task or jump to conclusions. But, it can also be detrimental to ‘over think’ every situation. Continuous vigilance is not necessarily good, and is certainly impractical.

The best we can do is a compromise: learn to recognize situations in which mistakes are likely and try harder when the stakes are high. Self-reflection is the most powerful tool available to review one’s judgment, biases, and the play of emotions.

All minds are intuitive—capable of recognition beneath the level of conscious awareness without cognitive processing. The challenge is discerning reality from wishful thinking, biases, desired outcomes, emotional clamor, and recognizing egoic ravings from intuitive insight or ‘gut’ feelings. Errors of intuitive thought can be difficult to prevent, ignore, or denied even when obviously in error.

The phrase “Know thyself”, a motto inscribed on the frontispiece of the Temple of Delphi, is the mind’s best reflective means to improve the quality of its mental processing.

Conclusion
Driven by life instincts, the mind is about making sense of the universe we live in—people, events, words, perceptions, and mental activity. Kahneman creates a two-system framework offering insights to understand the mind’s judging and choosing.

Kahneman’s work elaborates the distinction between the autonomic operations of System 1 and the controlled operations of System 2. The associative memory is the core of System 1 that continually constructs coherent interpretations of what’s going on in our world at any instant. This inherent and powerful mental processing thinks fast and occurs automatically below the threshold of consciousness awareness.

In life’s more complex situations, the complicated slow thinking, called System 2 is required. Its deliberative focused attention exerts mental effort for deciding and judging.

Errors and biases, called heuristics, occur in mental processing. Kahneman shows where the mind’s vulnerabilities lie and importantly gives language to think and talk about the mind.

Sometimes laziness of mind occurs and the easier path cognitive is taken. Emotions can play a strong role in judging and decision making. Emotions cast a haze like orange sun glasses making snow appear orange.

Furthermore, the mind’s mental processing calls upon previously created personal models and stories defining life’s normalcy. These models and stories beneath conscious awareness are necessary yet can lack relevancy and applicability in any particular situation. Yet, though ill-suited, the mind can use them to lend coherency and predict intention, agency, and causality.

Below is a reflective summary of common heuristics:

  • Halo Effect: Is my decision about this person influenced by my liking or disliking of them?
  • Affect and Emotion: Am I able to set aside these feelings to uncover relevant evidence? Maybe as opposed to liking or disliking, I’m just annoyed or impressed with this person? If so, proceed with caution.
  • Lazy State: How’s my state? Am I agitated, tired, mentally strained, or exhausted and just want to get through this issue? If so, pause.
  • Story Telling: Do I really know what’s going on or am I filling in the blanks with my model of reality? Upon examination do I really know the cause, agency, and the intention behind the event? What assumptions am I making?
  • Cognitive Ease: Am I taking the easy route on this decision or do I need to consider more deeply with a clear mind?
  • Confirmation Bias: Am I seeking information to support my position? Be particularly aware when I believe ‘I’m right’.
  • Substitution: Am I not facing a challenge and using an easy way out solution thereby avoiding the central issue?
  • Intuition: Am I being fooled by this intuitive knowing? Should I trust my discernment?

Kahneman’s work extends to considering why our brains have difficulty with statistics, estimating, and understanding probability. His work is foundational in behavioral economics that studies the effects of the cognitive, emotional, cultural, and social factors in individual and institutional economics. We’ll delve into behavioral economics in a later blog.

The information provided here is for general information only and should not be considered an individualized recommendation or personalized investment advice.


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