By: Daniel Kahneman

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We make hundreds of decisions each and every day, starting from the moment we wake up…

• Should I hit the snooze button one more time? 
• What am I going to have for breakfast? 
• Should I check my email before I get out of bed? 
• How long should I brush my teeth for? 

Before we've even left the bedroom we've made a significant number of decisions. Many of these decisions are not made consciously. For instance, which leg do you put into your pants first when you are getting dressed? You've probably been doing that the same way, every day, for the better part of your life. But you probably had to mimic the motion of putting your pants on in order to figure out the answer. 

Other decisions are made consciously. For instance, what's the answer to 23 x 18? To get to an answer, most of us would have to pull out a pen and paper (or the calculator on our smartphone) to figure it out. What's the point? 

In business and in life, we are constantly asking other people to make decisions, and we know very little about the way our brains work in order to make them. If you want somebody to decide to use your products and services, shouldn't you know how their brain works?

In this summary, you'll learn that the brain has two "systems" for making decisions, and why those decisions aren't always made the way you thought they would. Daniel Kahneman - a world-renowned psychologist and researcher - wrote an entire book on the subject of these two systems. In it he describes how we can use them to make better decisions, and help others make decisions in our favour. 

Part 1 - Systems

As Kahneman describes it, you have two systems for making decisions. The role of System 1 is to maintain and update a working mental model of your world. That model is constructed by associations between ideas, circumstances, events, actions and outcomes that co-occur together. This system works automatically and quickly. Here are some examples of System 1 in action:

• detecting that one object is further away than another
• figuring out the answer to 2+2=?
• driving a car on an empty road
• putting on your pants in the morning.

These items do not require a significant amount of your attention, and it's likely that you could do many of these things at once. You could probably tell me the answer to 2+2 if I asked you while you were putting your pants on in the morning, for instance. These are things that we might say we are able to do on "autopilot". 

In fact, one of the defining characteristics of System 1 is that it cannot be turned off. As Kahneman points out - if you are shown a word on a page that is in a language you understand, you will read the word unless your attention is 100% on something else. Kahneman describes the role of System 2 as the slow, analytical way of thinking. It allocates attention to effortful mental activities that demand it. Although there are many functions that operate within System 2, each of those functions require your attention to complete, and are disrupted when attention is drawn away. Here are some examples of System 2 in action: 

• focussing your attention on a particular person in a crowded and noisy room
• figuring out the answer to 23x18=?
• finding Waldo
• comparing two similar products for overall value.

These items do take a significant amount of your attention, and you are most likely only able to complete them if you give them your full attention. You most certainly wouldn't be able to figure out the answer to "23x18=?" if you were also trying to compare two similar products for overall value. 

One of the defining features of System 1 and System 2 is their relationship to one another. System 1 continuously makes suggestions for System 2 - impressions, intentions and feelings. System 2, for the most part, accepts the suggestions of System 1, and only kicks into high gear when System 1 does not generate an answer. For example, you were probably able to answer "2+2=?" without "really thinking about it." However, when you looked at "23x18=?" you didn't have an automatic answer at the ready, and System 2 started to kick into gear. System 1 is excellent at creating stories to form coherence of information. When information is scarce, System 1 jumps to conclusions.  This bias is so frequent that Kahneman coined the acronym WYSIATI – what you see is all there is. 

Part 2 – Heuristics and Biases

System 1 is not prone to doubt, but it is System 2’s job to pick up System 1’s slack. Our brains are lazy and like to look for patterns. In fact, we often see patterns where none exist because we are uncomfortable with the belief that most of what we see in life is random.

We cannot deduce accurate information from small samples, even though our imagination likes to come up with stories that support it. We pay more attention to the content of messages than to information about their reliability. 

The anchoring effect is a phenomenon that occurs when the first number we see in a particular situation sets the tone for all future numbers. The estimates stay close to the number that people considered – hence the image of an anchor.  Any number you see will have an anchoring effect on you, and if the stakes are high, you should mobilize your System 2 to combat the effect. 

A heuristic is a mental shortcut. The availability heuristic is the process of judging frequency by “the ease with which instances come to mind.” For example, if you watch many spy movies, you will be more sceptical about conspiracies in the real world because your mind will have an easier time accessing examples. This is why many people believe the world is more dangerous and violent than it actually is – the media gives disproportionate attention to unusual events. 

Heuristics are incompatible with logic and play a large role in our judgements. The ease with which instances come to mind is a System 1 heuristic, which is replaced by a focus on content when System 2 is more engaged. Multiple lines of evidence converge on the conclusion that people who let themselves be guided by System 1 are more strongly susceptible to availability biases than others. 

System 1 is capable of making extreme predictions. Often these predictions are irrational because System 1 doesn’t need evidence to jump to conclusions. 

Causes trump statistics. There is a big gap between our thinking about statistics and our thinking about individual cases. Statistical results with a causal interpretation have a stronger effect on our thinking than non-causal information. However, even surprising statistics will not change long-held beliefs or beliefs rooted in personal experience. Kahneman explains that performance results tend to normalise to the average value, a tendency referred to as regression to the mean. 

Part 3 – Overconfidence 

Our brains continuously attempt to make sense of the world and we often look for explanatory stories to do so. When recounting the past, we often construct a convincing story based on a compelling narrative and not on fact. For example, Google is one of the most profitable companies in the world. You may assume that they succeeded because of a chain of good decisions, but the truth is that luck played a very big part of their success. The ultimate test of an explanation is whether it would have made the event predictable in advance. Most of our favourite stories do not pass this test, but it gives us an illusion of understanding that makes us feel better. 

System 1 is designed to jump to conclusions from little evidence, and our overconfidence of our opinions reflects the coherence of the story that System 1 and System 2 construct for us. Yet some of our most important beliefs have no evidence at all. System 1 doesn’t need much evidence to jump to radical conclusions and make significant predictions. We hold a lot of confidence in our opinions and our judgments, yet that confidence mostly comes from cognitive illusions. Even experts make mistakes because the world is unpredictable. However, coherence makes us feel good and therefore it is important to remain confident in our decisions. 

Another illusion that makes us feel better is the illusion of validity, which is the belief that our abilities, and nothing else, are what determine the final outcome. In fact, according to research, the accuracy of experts is generally matched or exceeded by a simple algorithm. When making decisions, the use of formulas is always better than relying on human intuition. This may be because experts try to think outside the box and consider complex combinations in making their predictions when simplicity is better.  

You can apply this knowledge to tasks such as interview procedures. First, select about six traits that are prerequisites for success in this position. Next, make a list of questions that can reliably assess those traits and rank it. Score each answer and resolve that you will hire the candidate whose final score is the highest, even if there is another one whom you like better. You are more likely to find the best candidate if you use this procedure than if you make a choice using your intuition. 

Part 4 – Choices

Most people don’t like taking risks and will avoid it whenever possible. In most cases, when given the choice between gambling a value much higher than expected and being sure of an expected, lower value, most people will pick the lower value. This is because people want to know the outcome and avoid the risk. Utility depends on changes from one’s reference point.

Losses hurt more than gains and our motives follow that. For example, this could be why people don’t set high-achieving goals. If you set a lofty goal and never reach it, you experience a loss. If you set a low goal and reach it, you achieve a gain. When a sure loss is guaranteed, we are more likely to seek out risk. 

When we make choices that stray from our default behaviour, we are more likely to regret them. However, if you do an unusual thing and get a good outcome, you will feel happier than doing your typical behaviour and getting the same outcome.  A fear of regret is a motivation behind many decisions that we make. 

When we evaluate a decision, we’re prone to focus on the individual instance rather than the big picture. In order to avoid exaggerated caution induced by loss aversion, think of the decision as one of many. Single evaluations activate the emotional responses of System 1, whereas comparisons involve a more careful assessment, which activates System 2. 

Part 5 – Two Selves 

We have an experiencing self and a remembering self. The experiencing self is the one that enjoys pleasure and feels pain moment to moment. The remembering self is the one that reflects on past experiences and uses that to make decisions. We like to think that we make our decisions with our best interests at heart. However, our decisions are significantly influenced by our memory, a function of System 1, which as evolved to represent the most intense moment of an episode of pain or pleasure and the feelings when the episode was at its end. We are predisposed to remember the bad parts and often use those memories to make future decisions. 

Most people are indifferent to their experiencing self, only caring about the memories collected in order to fuel different narratives. Therefore, we derive more pleasure from peak highs with a short duration than moderate highs over long duration.

The word happiness doesn’t have a simple meaning and should not be used as if it does. Well-being means different things to different people because people have different values. Furthermore, it’s difficult to properly assess overall life satisfaction. System 1 focuses on current mood, while System 2 suffers biases and heuristics.