Do you ever wonder how biases occur? Is it nature or nurture? How do we make decisions? Why does hindsight always offer a 20/20 vision? What can we do to avoid biases in our decision making process?
“Thinking, Fast and Slow” by Daniel Kahneman offers a profound exploration into the psychological mechanisms that govern our thought processes. I was personally blown away by how much research has been done to understand these mechanisms, and what’s great is that some of what he covers you can easily prove by doing quick thought exercises. So in this post, I want to share eight of my favourite topics from the book:
1. The Brain’s Dual Systems: Fast, and Slow
Kahneman introduces us to the two systems that dictate our thinking. System 1 (fast and intuitive) and System 2 (slow and deliberate). System 1 handles quick decisions, like intuitively reading a person’s emotions during a date. Thanks to your System 1, you can easily text a friend to make an exit when required. Meanwhile, System 2 engages in deliberate analysis, solving complex problems. Can you try and compute 24×17 now? Even if you give your brain 30 seconds to compute that, your System 2 may have already given up. Because it’s lazy!
The learning here is that System 1 can be fast but biased, the second is more logical but slow. Understanding this duality and reflecting what’s at work when we make decisions helps us navigate this process more effectively.
2. The Availability Bias
One of the book’s crucial lessons is the availability bias: our tendency to overestimate the importance of information that is readily available to us. Just because something comes to mind easily doesn’t mean it’s accurate. My international friends and co-workers never fail to bring up the fact that they are scared about shark attacks, snakes and spiders, when the thought of moving to Australia cross their mind. Availability bias (thanks to media coverage) is definitely at work.
We need to consciously seek out more balanced perspectives. What evidence is absent in this conversation? Am I making decisions based on recent interaction and available but partial data?
3. Regression to the Mean
If you work in statistics, this should be familiar to you. But for those who don’t, regression to the mean is the concept that extreme outcomes tend to follow more moderate ones over time. This concept is a critical reminder not to overinterpret single events or outcomes.
For example, if you’re in Sales, recall your best sales year ever. I would make a bet your sales manager upped your quota the following year just because they can. However, knowing regression to the mean, there’s a good chance your performance would be less than your best (doesn’t mean it’s bad). Or if you’re seeing a stock price jump really high and it’s been doing so consecutively. There’s a good chance, that will adjust back to normal. Or if you were born REALLY tall, there’s a good chance your child will be slightly shorter than you.
Kahneman argues Regression the mean is everywhere if only we take not and incorporate in our decision-making.
4. The Danger of Preferring Narratives Over Statistics
This one was a little scary for me, but this explains why a lot of innocent people get incarcerated. No matter how the justice system tries to play fair, our brains are inherently attracted to stories and narratives, often at the expense of statistical evidence. This preference can lead us to ignore statistical realities, making decisions based on what feels compelling rather than what is true.
5. Mitigating the Planning Fallacy
If you’ve been in services and delivery, there’s a good chance you have been in a project, where it took longer than expected and the actual costs are bigger than projected. There’s also a good chance that this has happened more often than not. In fact, there is great statistic that backs this for infrastructure projects around the world. This is called the planning fallacy, often stems from the Inside View, which takes account information from the inside group (i.e. company). This type of planning, Kahneman calls the planning fallacy.
Thankfully, there are solutions. The planning fallacy, our tendency to underestimate the time, costs, and risks of future actions while overestimating the benefits, can be mitigated by adopting an outside view and conducting a pre-mortem analysis.
- The Outside view requires for you to ask, “how long have projects like these outside of our company taken? What percentage of actual over forecast did others see?”
- Pre-mortem, requires you to time-travel into the future and imagine the project failed and ask yourself “what part of the project caused this to fail? What assumptions did we make that caused this to fail?”.
These strategies encourage us to consider a wider range of outcomes and potential obstacles upfront.
6. Loss Aversion
This one I’ve been able to apply at work a few times and they have been successful. Kahneman discusses how the human brain responds to loss larger than gains. If you’ve read Jordan Petersson’s “Twelve Rules for Life”, his chapter one talks about the lobster that defends a territory more often that the lobster attacking. That’s loss aversion at play. The defending lobster will fight more to retain what’s already his than the lobster wanting to take over.
Though this topic isn’t about sales, I found real application of this in my job. So for those in Sales, understanding this can reshape how you approach selling (at least I have), highlighting the importance of framing decisions in terms of potential losses rather than gains.
7. The Sunk-Cost Fallacy
A common trap many of us fall into is the sunk-cost fallacy, where we continue a venture simply because we have already invested in it, regardless of the future costs or benefits. Recognizing this fallacy can help us make more rational decisions about when to cut our losses.
This is a hard one to break out of, especially if emotions are at play. This is very applicable to stocks (hello, paper losses), or projects that have been going on for forever without results (thank God, Apple has given up on the Apple Car project), or relationships that aren’t working but you don’t want to break up because you feel invested. This happens everywhere if we only we take time to recognise it at play!
8. Judging Experiences and the Peak-End rule
Ever travel and compare which ones were the best moments? Interestingly, our brains judge the quality of our experiences not by their duration but by two things: their peak moments, and how they end, hence the terminology “Peak-End”. A good analogy here is relationships, you might have been with a person for a very long time, and yet you meet someone for a short time and want to marry them and commit long term (not saying from experience as I was lucky to find my partner early on). Could be the peak-end rule? This insight has profound implications for how we evaluate our lives and make choices.
Conclusion
These eight topics are just a few of the many areas he covers. The book has 36 chapters and each one can be a book of it’s own. I will warn you though that it’s written in quite an academic style so there were times it became hard to read. Definitely one of the books that took me the longest time to read. However, the insights are profound and can change the way you make decisions, in both your personal and professional lives. As said in the back of it’s cover – Buy this fast, and read it slowly. I would be surprised if you didn’t learn a thing or three that you could takeaway and use to your benefit.
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