By Chet Yarbrough
Narrated by Patrick Egan
There are certain knowns that are known and certain knowns that are unknown. Well, I know something that I know nothing and Daniel Kahneman seems to prove it. Every chapter of Kahneman’s book suggests something one finds hard to believe is true.
Daniel Kahneman is a renowned psychologist and Nobel laureate. He is an American citizen that served in the Israeli military and used his education, research, and experience to write “Thinking Fast and Slow”. His observations explore many aspects of human decision making.
How one runs their business or lives their life is framed by how they think. Kahneman explores two fundamental ways of thinking that reveal human strengths and weaknesses. “Thinking Fast…” is intuitive and easy. It is prejudiced by personal life experience and education. It is activated through an evolved instinct that forms the basis for snap decisions. In contrast, “…Thinking Slow” is a snail speed, deliberative, calculating, and workaholic decision making process. Kahneman calls these mental functions System 1 and System 2 respectively.
“…Thinking Slow” is undoubtedly prejudiced by Kahneman’s scientific interpretation of human thought and action but judgment of his observations is up to the reader or listener; so, caveat emptor.
The more common decision making tendency of the brain is to use System 1 rather than System 2 when making decisions because it is easier and because, as Kahneman notes, behavioral studies and brain imaging show human brains are lazy (not inclined to use System 2’ thinking because it is more laborious than System 1). System 1 often leads humans to make incorrect intuitive decisions. System 2 potentially improves probability of making better, or at least more rational, decisions. However, System 1 is important for life and death decisions that require instantaneous action. Kahneman gives the example of an experienced fire commander using System 1 thinking when he tells his team to get out of a burning house because his mind subconsciously gathers experiential information telling him the floor is about to collapse.
Kahneman contrasts the value of System 2 thinking by exploring System 1’s habit of unconsciously benchmarking manufactured product pricing to seduce consumers to buy at higher prices. In other words, if a product is priced high, System 1 thinking benchmarks a price point and is willing to pay a higher price. Another observation is that employee interviews are often detrimental to the selection of the best job candidate. Kahneman describes the “halo” effect caused by System 1’ thinking that gives too much weight to a one time “good” interview evaluation of an employee candidate. To protect from the “halo” effect, Kahneman suggests that interview questions be structured and an employment process be standardized to give other objective criteria for choosing the best employment candidate. In other words, design an employee selection process based on clearly defined job requirements that are equally measured and fairly weighted for each candidate. Employer hiring solely based on a candidate’s interview is not a good determinant of employee performance.
This brief review is a single drip of sweat in a twenty hour work out. A listener will be interested in Kahneman’s assessment of stock trader’s contribution to investor’s wealth and what value should be given to political or history pundit’ prognostication. Kahneman undoubtedly exaggerates the import of some scientific studies but his writing engages System 2 thinking. A System 2 person will want to listen to “Thinking Fast and Slow” more than once.
Following is a you tube link to a Kahneman presentation for those that might be interested: http://www.youtube.com/embed/XgRlrBl-7Yg” frameborder=”0″ allowfullscreen></iframe>