I have read several thought provoking books but this one by Nobel prize winner Daniel Kahneman gives insights into our very own thought process itself. We keep hearing about stepping back to rethink and are encouraged to “think through” before acting – this book explains why they are required.
All my life, I was under the impression that intuition is a talent and a gift. After reading this book, I realized that we should be careful about our intuition and that common sense typically produces ordinary results!
My biggest learning from this book is that there are two systems that help us think and make decisions:
- System 1 – the fast paced “automatic operation” or “intuitive thought” driven by amygdala, a primitive part of our brain.
- System 2 – relatively slow paced “controlled operation” or “deliberate thought” driven by neo-cortex, the most distinctively human feature of our brain.
While invoking system 2 for any decision will ensure thorough analysis and reduce mistakes, we may not always have the luxury of time and energy required for it. So, we will have to rely on intuition for a number of day to day decisions. And this is where understanding the two types of intuition comes in handy.
- Expert intuition: Thousands of hours of practice leads to expertise – Malcom Gladwell’s “Outliers” explains this well through the 10,000 hour rule. While this rule is contested by some, it is still a good framework for understanding expertise. Now, any situation where we need to make a decision will invariably provide a cue that an expert will sub-consciously detect. This cue gives the expert access to information stored in memory and the information provides the answer. Expert intuition is just recognition!
- Heuristic intuition: When faced with a difficult question, we often substitute the original question with an easier one without noticing the substitution. The resulting easier question will be one for which we readily have an answer, which will invariably be based on our biases. I have observed many leaders form “perceptions” about people and now I understand it should be because of their heuristic intuition!
Whenever I have an intuition or gut feel nowadays, I ask myself if this is due to expert intuition or if this is influenced by heuristics or biases. Expert intuition is good – in fact, what is the point of earning expertise through hard practice if we are not going to use it! But heuristic intuition is bad, leading to bad decisions that leaders in particular should avoid as it can adversely impact their people! So, the healthy alternate is switch to slower, more deliberate and effortful form of thinking whenever we suspect heuristic intuition.
This book is a beauty and took more than a couple of months for a slow reader like me to complete. It will be a long blog post and will take several hours for me to write about everything I learnt. So, I will summarize with some quick pointers to key concepts:
- Law of least effort – if there are several ways of achieving the same goal, we will eventually gravitate to the least demanding course of action. Laziness is built deep into out nature.
- Cognitive Ease – when we are in a good mood, we are likely to be casual and superficial in our thinking. Don’t get “carried away”!
- Jumping to conclusions is efficient if the conclusions are likely to be correct and the costs of an occasional mistake is acceptable, and if the jump saves much time and effort. It is risky when the situation is unfamiliar and the stakes are high.
- The law of small numbers – statistics can help when the sample size is large enough and comprehensively representative. Conclusions made based on small numbers will not be prudent as they assume a simpler world than reality and ignore that many facts are due to “chance”.
- Regression to the mean – whenever someone produces extraordinary and outstanding results, an element of chance is likely to be one of the reasons. Over a period of time, the results will converge towards the average.
- Illusion of understanding – hindsight information is often misunderstood as prophetic knowledge. A number of books that analyze past events and postulate a recipe for future success have fallen flat over a period of time. A classic example will be “Build to last” – the gap in corporate profitability and stock returns between the outstanding and the less successful firms studied in this book shrank to almost nothing subsequently! How about this? – the CEO of a successful company is likely to be called flexible, methodical and decisive. If the firm slips the next year, the same executive will be called confused, rigid and authoritarian! The same actions can be conveniently depicted in positive or negative terms creating an illusion of profound understanding of the presenter!
- Prospect theory, loss aversion & the endowment effect – These are profound concepts:
- Reference points exist – A specific amount of money does not have the same value for everyone. A person earning $1000 a month will be a lot more excited about $100 than someone who earns $10,000 a month. This explains why hikes are measured in % rather than absolute amounts!
- Losses loom larger than gains – we give up on gains more readily than incur losses. A reason why people cling on to losing propositions for long and end of losing even more rather than exit early to cut losses!
- A luxury becomes a necessity over a period of time as we get used to it.
There is a lot more to read and learn from this book, which is currently #1 best seller under Cognitive Psychology eTextbooks in Amazon. I have just provided an appetizer here and the book will be the main course. And I promise the main course will be much better than the appetizer. Go for it!