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Thinking, Fast and Slow

Written by: on November 27, 2022

Bounded Rationality: A Precursor to Systems 1 and 2

Herbert Simon, an economist, and political scientist coined the phrase “bounded rationality” in 1947 in his work The Administrative Behavior. He was interested in decision-making and questioned the concept of perfect rationality that had dominated common and scientific knowledge.[1] Simon redefined human rationality and, at the same time, recalibrated how the scientific community approached human reasoning.[2] Essentially, Simon discovered that based on limited cognitive abilities and one’s social environment, people tended to make “satisficing” rather than optimal decisions. The term “bounded rationality” was then used to describe how people make decisions when optimization is out of reach.

Decades later, Kahneman and Tversky were influenced by Simon’s critique of human rationality and perceptions of chance. As psychologists, they advanced the work to explain how bounded rationality works in human beings – thus their prospect theory and subsequent work on heuristics.[3]

Kahneman’s Influence

The broad theme of his research is that human beings are intuitive thinkers and that human intuition is imperfect, with judgments and choices often deviating substantially from predictions of normative statistical and economic models.[4] The impact of his research has been significant in the realms of psychology, economics, finance, and the conceptual innovation of behavioral economics over the past 30 years.[5]

In a Nutshell

According to Kahneman, people utilize intuitive thinking unconsciously – it just happens. He labels this thinking for simplification as System 1. The other way people think is by being very deliberate and controlled. This controlled thinking is used because a skill has been developed in a particular discipline or everyday life skill. Kahneman calls this System 2 type thinking.[6]

It is clear that Kahneman, as a psychologist, has very little use for intuitive thinking. However, he has spent a great deal of time researching the boundaries or limitations of System 1 thought to increase his understanding of how people make economic decisions. Previously, economists believed people made financial decisions based on the expected gains from possible scenarios. (2) Kahneman’s research, along with Amos Tversky, revealed that people could not make complex decisions based on uncertain conditions. Instead, many people based their decisions on System 1 thinking.[7]

One major disadvantage Kahneman’s research discovered of System 1 thinking is the inability to develop intuitive thinking. Associative memory looks back for causes and then generates coherent representations. If the answer is coherent, then the person’s confidence is high. But Kahneman’s research argues that the confidence quality of the solution has little to do with the quality and quantity of the information.[8]

A Different World

In his Google Talk interview, Kahneman mentioned Malcolm Gladwell in a not-so-favorable light because Gladwell, in his book, Blink, takes the opposite position on intuition. As a result, I wanted to learn more about Gladwell’s findings.

Gladwell states in his book that our intuition is instrumental in unconsciously helping to assess a person or situation quickly. He calls this “thin-slicing,” an ability that has evolved over the years to determine the actions and motives of companions with a split-second glance (I think this is the blink he refers to).[9]

What is most intriguing is that Gladwell considers this intuitive way of thinking entirely accurate, allowing for rapid decision-making. It resides entirely in the unconscious and is almost impossible to access deliberately.[10] The unconscious mind can be protected, according to Gladwell. The ability to protect is a significant departure from Kahneman. Gladwell states that influences may cause the capacity of thin-slicing to be hijacked or untapped. Biases and prejudices can cause people to circumvent this ability, so one should incorporate protections to keep this from occurring.

My Take

I do agree with both Kahneman and Gladwell. First, intuitive thinking is not very useful in decision-making based on statistical probability. Secondly, I agree with Gladwell that people have been given the intuitive ability to utilize thin-slicing, particularly concerning human interactions.

The two are not mutually exclusive, and usage is based on situations, and we should learn how to maximize and trust our intuition.

However, while reading about Kahneman and his research, I couldn’t help thinking that if humans are portrayed as so flawed in their intuitive thinking and decision-making abilities that the way is rapidly being paved for Artificial Intelligence. Take away the human error factor and replace it with programming commands, AI, to make it easier to get to the desired outcome. The opportunity cost is that humans lose their ability to think altogether. Remember when you learned multiplication? How many students today can do multiplication without a calculator?

[1]Matteo Cristofaro, “Herbert Simon’s bounded rationality,” Journal of Management History, 23(2) (2016): 170, https://doi.org/10.1108/JMH-11-2016-0060

[2] Ibid., 170.

[3] Ibid., 173.

[4] T. Britannica, T. Editors of Encyclopaedia. “Daniel Kahneman.” Encyclopedia Britannica, (2022): 1, https://www.britannica.com/biography/Daniel-Kahneman

[5] Andrei Shleifer, “Psychologists at the Gate: A Review od Daniel Kahneman’s “Thinking, Fast and Slow,” Journal of Economic Literature, Vol. 50, No.4 (2012):1084, https://www.jstor.org/stable/23644912

[6] Daniel Kahneman, Thinking, Fast and Slow, Talks at Google, April 11, 2022 https://www.youtube.com/watch?v=RSV9b5IkSv8

[7] T. Britannica, T. Editors of Encyclopaedia. “Daniel Kahneman.” Encyclopedia Britannica, (2022): 1, https://www.britannica.com/biography/Daniel-Kahneman

[8] Daniel Kahneman, Thinking, Fast and Slow, Talks at Google, April 11, 2022 https://www.youtube.com/watch?v=RSV9b5IkSv8

[9] Blink: The Power of Thinking Without Thinking Summary, (March 2021): 5, http://www.enotes.com/blink-power-of-thinking

[10] Ibid., 5.

About the Author

Audrey Robinson

3 responses to “Thinking, Fast and Slow”

  1. Michael O'Neill says:

    Awesome post, Audrey. I am a victim of my own hijacking sometimes. I am constantly trying to refine those skills. This served as a great reminder.

    As for AI, do you think with the rapid developments in this field that it is hurting our own intuitive thinking or other forms of cognitive processes?

  2. Audrey Robinson says:

    I do think that many will find a way to use AI to hijack human thinking. I read an article a few years ago that was a highlight of a world summit in Davos.

    Essentially, the everyday white-collar worker is going to be replaced with AI. So unless people develop specialized computer skills they will be displaced.

  3. Audrey,
    You being an interesting perspective with the AI discussion. The shift in our culture to reply on technology surely has an impact on our thinking. It is seen readily in the reduction of our attention spans. The video clips that hold my weight in our understanding of truth and reality then the study of the whole of the video. We see this with social media and mis information. Our thinking is what makes us human. I wonder if the development of AI is about our laziness or about power, these are both scary thoughts to have it will be interesting to watch it all unfold.

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