Kahneman's Dual-System Theory Paper

When humans make a decision, it often turns out to be “predictably irrational” (Ariely, 2009). They always deviate systematically from expected decision rather show an inclination towards a certain way of thinking. This consistency of behavioral or decision bias can be very helpful to identify consequences or outcomes in a different

Voltaire once said, “Doubt is not a pleasant condition, but certainty is an absurd one.” We live in a world that is constantly changing and does not grant the certainty that people desire. But, people want the stability of knowing what is going to happen; this is why certainty is absurd. In his essay The Surety of Fools, Daniel Kahneman provides examples of people using a phenomenon he calls the illusion of validity. These people strongly believe their actions cause a specific outcome, when in reality there is statistical evidence that shows their actions have no direct correlation with the outcome. While Kahneman argues the illusion of validity comes partially from people’s tendency to make quick decisions without fully conveying the causes, it really stems from people’s fear of uncertainty from having a lack of knowledge. Other fields of academia, such as science and economics, have admitted that uncertainty grounds their thinking processes. Kahneman is inaccurate in neglecting to mention that it is the fear of uncertainty that really causes the illusion of validity.

Economists have often modelled human decision makers as completely rational. According to this model, rational people know their own preferences, gather and accurately process all relevant information, and then make rational choices that advance their own interests. However, Herbert Simon won a Nobel Prize in economics by pointing out that people are rational, but only boundedly so in that they seldom gather all available information, they often do not accurately process the information

In today’s economy, decision-making skills vary for each household; however, the bottom-line goal for every individual is to get the most for their money. In order to do this, there are 4 principles of individual decision-making: facing trade-offs, evaluating what one is giving up to obtain their goal, thinking at the margin, and responding to incentives.

Decision-making can be a cognitive process of selecting a course of action form various options. Some of us are logical. Some of us are risk taking. Either way such characteristics play a role in our decisions. In my experience decision-making can

The challenge when working with others to make a decision is that we all have our own methods of coming to a conclusion. The rational decision-making model is comprehensive in the fact that it requires the decision maker to define the problem, identify criteria for making the decision, weight the criteria, develop alternatives, evaluate alternatives and finally select the best alternative (Robbins, S.P., Judge, T.A. 2009). The challenge with utilizing this method is the fact that most of the time in real world situations, facts are either limited or missed, time compression causes an oversight on all potential alternatives and people tend to choose the easier route to make decisions (Robbins, S.P., Judge, T.A., 2009). Intuition is a powerful tool, however it can also lead to quick and potentially bad decisions (Robbins, S.P., Judge, T.A., 2009). I can recall a conversation with a leader about an employee that made an error administering a medication. The manager had not spoken with the employee or

There are two types of thinking systems. The first is System 1, this is fast, effortless and implicit thinking. This is the system most of the leaders follow, and we are almost preprogrammed to do so. The System 2 approach is more calculated, slow, explicit and logical. That’s is the system we are using when we make good decisions with long term sustainable results. The issues with both of these systems is that they are not consistently applied in all cases. Bad decisions are a fact of life in the business world, and the consequences are much greater. One that comes to mind is the Ponzi scheme perpetrated by Bernie Madoff. Had he thought through his decisions in a more calculated manner, this could have been avoided.

This week’s reading Predictably Irrational was very valuable, and informative. While coming up with so many ways of thinking when it comes to behavior, I had no idea even existed. We talked last week about being rational, but this week and this week’s reading it discussed more about irrational, and predictable behavior. At the end of this summary I hope to have showed and understand the difference when it comes to irrational and predictable theories that can disrupt behavior, and decision making.

Rational choice theory accepts that all individuals attempt to effectively expand their preference in any circumstance and in this way reliably attempt to minimize their misfortunes. The hypothesis depends on the possibility that all people construct their choices in light of sound figuring’s, act with discernment when picking, and intend to increment either delight or benefit. Rational choice theory likewise stipulates that all unpredictable social wonders are driven by individual human activities. Accordingly, if a business analyst needs to clarify social change or the activities of social organizations, he needs to take a look at the balanced choices of the people that make up the entirety.

The book starts by clarifying the two fundamental modes of thought: ‘system-1 (the fast thinking system) and ‘system-2’ (the slow thinking system). System-1 is fast, automatic, effortless, and intuitive. And it cannot be turned-off. While, system-2 is slow, effortful and lazy. But in all, system-2 is a very supportive system.

The ability for one to make rational decisions is vital, and this is especially true for decisions that can have enormous consequences. The process for making rational decisions is tedious, it requires one to have the opportunity to deeply process, evaluate, and re-evaluate available options. This suggests that rational decisions must be made in the absence of external parties because external influences are capable of preventing individuals from processing information for themselves. Otherwise, this would likely result in the individual coming to rash conclusions that cater to the external parties. Unfortunately, under most circumstances, it is a challenge to make rational decisions, because as social animals, we constantly expose

Daniel Kahneman’s book, Thinking Fast and Slow, describes two systems: System 1, which is the automatic, effortless hero of the mind, and System 2, the “conscious, reasoning self”(p. 21). In separating the mind into two different processes, Kahneman, the Nobel Prize-winning economist, developed different ways to measure how our minds and bodies react to stressing one process or the other. Since System 2 is inherently lazy, it often makes decisions after System 1 assess the situation. However, there are tasks that only System 2 can do, usually complex and vital, and because they are demanding and require discipline, System 2 can become overwhelmed, or work at

Kahneman’s systems of thought is largely built on the framework of Stanovich and West (2000; as cited in Kahneman, 2003). It describes two types of thought processes: system 1 (perception and intuition) and system 2 (reasoning).

Simon presented the bounded rationality as a result of human and organization constraints. He sees that the managers would not achieve the requirements of rational behavior. He observed that different types of decisions can be processed in different ways, namely: programmed decisions and non-programmed decisions. The programmed decisions category included decisions that occur frequently. Managers are used to these types of decisions and they already have developed some kind of protocols and procedures for making them. These decisions usually are left for the lower posts in the organizational hierarchy.

Peter Senge and Andres Edwards expressed the importance of system thinking in that it is necessary for “understanding the dynamic complexity of a situation”, anticipating “the unintended consequences of proposed actions” and implementing “lasting solutions” (Higgins, K 2014).