Skip to 0 minutes and 12 secondsIn this video I'm going to introduce the ideas of Daniel Kahneman. Kahneman was an Israeli-born psychologist and economist who won a Nobel prize in economics for his ideas about how flaws in people’s thinking can affect their ability to take rational decisions. Kahneman’s main contribution to knowledge was the idea of System 1 and 2 thinking. Essentially, System 1 thinking is intuitive, is quick and is instinctive, whereas System 2 thinking involves a much more considered weighing up of options and so it is a much slower and more reflective process. So an example of System 2 thinking might be for example doing a cost-benefit analysis where if for example a small business is considering whether to open a new outlet.
Skip to 1 minute and 12 secondsNow System 1 thinking can be very important for example to keep us out of danger because instinctively our brains tell us to get out of the way of danger but what Kahneman argues is that System 1 dominates our thinking even when we believe that we're using System 2 and that as a result we often think that we're taking rational decisions where we're weighing up the options when actually we aren't.
Skip to 1 minute and 41 secondsThe other thing that Kahneman did in his work was to identify a whole series of cognitive flaws which he calls heuristics which can affect the quality of our thinking and the quality of our decision making and one of the things that we're going to do during this course is to explore some of those heuristics in greater depth.
Skip to 2 minutes and 8 secondsSo for example, one heuristic is the availability heuristic and what the availability heuristic says is that we are likely to think that something that readily comes to mind is of a higher quality than perhaps it actually is and this is the reason why companies pay so much to advertise their products because essentially if we see for example, the Coca-Cola logo everywhere then when we're thirsty and would like to buy a cold drink our instinct is to buy a Coca-Cola, even though other soft drinks may perform better in blind taste tests.
Skip to 2 minutes and 52 secondsWe go for Coca-Cola because that is the one that most readily comes into our mind and there are a whole series of other cognitive flaws or heuristics which can affect our ability to take rational decisions. So that’s a very brief introduction and overview of the key ideas of Daniel Kahneman and essentially he is one of the main intellectual influences behind this whole module and we'll explore these ideas in greater depth throughout the module. I hope you've enjoyed the video.
The challenge of making decisions
Earlier this week, you were introduced to the models of System 1 and System 2 thinking. In this video, Neil Pyper recaps the key features of these models and discusses Kahneman’s ideas about how cognitive flaws, or heuristics, affect the quality of our thinking and decision-making.
Kahneman’s ideas will be explored in greater depth throughout the Decision-making and Risk program.
Watch the video again and note down the key ideas of Kahneman. Neil Pyper gives some examples of how System 1 and System 2 thinking and heuristics might affect our decision-making. Can you think of any further examples?
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