Insights from Thinking, Fast and Slow
Primary ways our fast, intuitive, feeling based system makes costly decisions and how to avoid them
According to author and psychologist Daniel Kahneman, our decisions are governed by two thinking systems:
System 1 - fast, intuitive, feeling based system
System 2 - slow, reasoning based system
Although we may identify more with system 2, the automatic system 1 is more in control of our decisions than we realise. If we don't periodically slow down and validate system 1's intuitive judgement, we might make costly one-way door decisions more often that we'd like to; choose the wrong career, commit to a new idea, pick the wrong partner etc.
Here are the primary ways the fast thinking system (system 1) makes costly decisions, and how to avoid them:
Frequent exposure bias
One of the most reliable ways to make people believe in fabrication is frequent repetition. Familiarity is our comfort zone; it's not easily distinguished from the truth.
If we don't check for frequent exposure bias (or the mere-exposure effect) before making important decisions, our choices will be based on environmental conditioning. The most obvious application of this is in advertising. But its prevalent in most areas of human decision-making.
To truly exercise free will and combat this bias, learn to pause before an important decision and ask yourself:
"Is this the best option or just the option I've been frequently exposed to?"
Status quo bias
System 1 defaults to choices that maintain the status quo. This is because psychologically system 1 thinking weighs losses much higher than equivalent gains, also known as loss aversion. For example, it implies that one who loses $100 will lose more satisfaction than the same person will gain satisfaction from a $100 windfall.
If we instinctively overvalue losses, what we own, and invest in, we are trapped by the past and destined to maintain the status quo. In behavioural economics this is known as the endowment effect; it is the finding that people are more likely to retain an object they own than acquire that same object when they do not own it. Sound familiar?
Counteract this by asking:
What opportunities do I lose by maintaining the status quo? What are you saying no to, if you continue to say yes?
Tunnel vision bias
System 1 is quick to make decisions based on limited information, and this is a rather important trait to have. Unfortunately what it's also great at is blocking out conflicting information. This is called tunnel vision bias. It leads to conclusions that feel right but are wrong.
It's hard to quantify the economic impact of tunnel vision - mainly because it is opportunity lost. And nobody is fighting to expose the error of our ways, so it goes undetected. But surely this is not an acceptable situation, so how can we combat this?
Fight the natural tendency to form strong beliefs on limited information by routinely asking:
Why might the opposite be true?
All the points above may sound like a chore, I can hear you thinking, "How can anyone consciously apply this in their daily life?" but the chance to avoid costly mistakes may just be worth the effort.