April 6, 2016

Why You Shouldn’t Make Decisions Using Instinct: System 1 and System 2 Thinking

April 6, 2016

Why You Shouldn’t Make Decisions Using Instinct: System 1 and System 2 Thinking

Power of Model Thinking, Daniel Kahneman

Remember multiple-choice exams back in high school? Remember that gut feeling you get when you start pencilling in too many A’s in a row? You start to think “Surely the markers would not put four A’s in a row. That didn’t happen in your last exam so it can’t happen now.” Then you review the questions, check your sums and come to the conclusion that your answers were correct.

What you’ve experienced are the two systems of thinking, described by Nobel Prize winner Daniel Kahneman in his book Thinking, Fast and Slow as System 1 and System 2.

Everyone uses these same two systems to give quick instinctive responses and to (sometimes) come to a considered conclusion. Today, we explore the two systems and what it means for decision making.

 

System 1

Fast, instinctive, obvious, and instantaneous.

The initial gut feeling you had during those exams was your instinct. Instincts are based on your past experiences, emotions, subconscious feelings and associations.

System 1 conclusions are often inaccurate and superficial, because they don’t use logic or process information in a rational manner. Most of our life decisions are governed by this system.

System 1:

  • Solves 2+2=
  • Completes the sentence “Fish and …”
  • Drives a car on an empty road
  • Detects hostility in a voice
  • Chooses a chocolate bar at the supermarket

 

System 2

Slow, rational, logical, purposeful, and deliberate.

Solving a math problem or using your self-control are both situations where your System 2 is being used. System 2 is the actual considered thinking that people do – and it takes effort.

System 2:

  • 17 x 24 =
  • Compares two washing machines for value
  • Fills out a tax form
  • Searches a crowd for someone you know
  • Evaluates two tender documents or proposals

 

System 1 Always Comes First

For any situation, System 1 is your first response. System 2 will only kick in if triggered by a tough decision or if something seems out of place. Kahneman also explained that System 2 starts by trying to reinforce System 1’s response, before testing the assumptions.

 

Instinct Lets You Down

The following three questions come from Shane Frederick's Cognitive Reflection Test, developed to demonstrate to the US military how instincts can let you down. Have a genuine attempt at each question and you will see System 1 and System 2 at work.
  1. A bat and a ball cost $1.10 in total. The bat costs $1 more than the ball. How much does the ball cost?
  2. If it takes five machines five minutes to make five widgets, how long does it take 100 machines to make 100 widgets?
  3. In a lake, there are a patch of lily pads. Every day, the patch doubles in size. If it takes 48 days for the patch to cover the entire lake, how long would it take for the patch to cover half of the lake?

Did your first reaction tell you that the answers are 10 cents, 100 minutes, and 24 days? That was System 1 giving you an impulsive answer. Then, if you could summon the energy, System 2 kicked in to get you to the real answers — 5 cents, 5 minutes, and 47 days.  

The key implication here is to recognise when you need to engage rigorous thinking to ensure your decisions are well made.

 

Implications for Business — the Step Change Way

System 1 and 2 means people make an emotional decision first, before looking for a rational justification. In your marketing, there are implications you should be mindful of when you're developing a business strategy.

Market leaders should avoid System 2 thinking — by keeping customers in a familiar territory. This is how System 1 forms habits. Be careful with changes to your brand or, for FMCG brands, your packaging. You want the customers to buy from you naturally, without any second guessing. 

Challenger brands need to disrupt System 1 in order to get a System 2 reevaluation of the category. This is your opportunity to avoid looking the same as the market leader or using the same language. Give your customers a reason to reassess their habits and choose to buy from you. 

If you write proposals and tenders, remember you need to win emotionally before you present a rational justification. A 200-page tender document hides the value unless the reader already likes you.

Unlike biases, knowing about the systems won’t make you immune to them. So don’t just blindly trust your instincts. Know when to reassess your thinking and you’ll be able to influence your customers more effectively.

 

PS. Did you catch our last post about how Virtual Reality is Transforming the Way Businesses Do Their Marketing? 

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