System 1 and System 2 thinking

A key insight that helps us understand how we make decisions is the distinction between two different ways of thinking: fast thinking (also referred to as ‘System 1’) and slow thinking (‘System 2’).

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While this idea about decision-making was first coined by Nobel prize-winning economist Daniel Kahneman, Stanovich and West (2000) argue in a key work on this subject that:

  • System 1 is intuitive, fast, automatic, effortless, implicit and emotional
  • System 2 is slow, more deliberative, logical, and requiring effort and energy

Most decisions are taken using the System 1 model of thinking. In many cases, this is fine. Indeed, our brains use System 1 thinking to help us instinctively avoid danger – for example, when crossing a busy road. However, System 1 thinking can let us down when making important management decisions. These require System 2 thinking, such as the rational model of decision-making that we will be exploring later this week.

Unfortunately, owing to pressures of time, managers all too often rely on System 1 thinking (Chugh 2004). Moreover, sometimes we use System 1 thinking even when we think we are using System 2, as our analysis of the options open to us may not be as systematic and objective as we would like to think. This results in sub-optimal decisions being made.

Specifically, managers may set out to make rational decisions but find they frequently lack key information. There are several possible reasons for this:

  • Time and cost limit the quality and quantity of available data
  • The human memory can only retain a small amount of usable information
  • There are limits on what can be understood and there are errors of perception

As a consequence, managers often overlook optimal decisions for ones that seem favourable or reasonable – ‘satisfiers’ or, in other words, ‘good enough’ (Bazerman and Moore 2017).

In the next step, you will reflect on what type of thinker you are.

References

Bazerman, M. H., and Moore, D. A. (2017) Judgement in Managerial Decision Making. 8th edn. Chichester: Wiley

Chugh, D. (2004) ‘Societal and Managerial Implications of Implicit Social Cognition: Why Milliseconds Matter’. Social Justice Research 17 (7), 202-223

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This article is from the free online course:

Decision-making and Risk: An Introduction

Coventry University