How to Make Great Business Decisions by Thinking Fast and Slow
As a business owner, you’re constantly on the move. There are a million things that constantly need your attention and you’re making decisions left and right. Moving fast is just a way of life.
Making quick decisions, however, is not necessarily the same as making good decisions.
When you dive into cognitive psychology and economics, you’ll discover that there is an actual science behind the act of decision-making. The ideas of fast and slow thinking as two different modes of thought, were first described in Daniel Kahneman’s book Thinking, Fast and Slow.
According to Daniel, we have a two-system way of thinking: Thinking Fast (System 1) and Thinking Slow (System 2). Keep listening for more on how to recognize these systems within yourself, and how harnessing the power of each one can help improve the quality of the decisions that you make.
Thinking Fast (System 1)
An easy way to think of System 1 is that it is your gut reaction to experiences in your life. It is arguably the stronger of the two systems, and we tend to default to thinking fast, or reacting quickly, before moving on to a slower processing of events.
An example of thinking fast is first impressions. When you first meet someone, your brain quickly analyzes their appearance, demeanor, body language, and more. You create a snap judgment of who that person is based on your initial interactions with them, as well as past memories and experiences.
System 1 is what builds a story around this person when you first meet them, and it’s not until later on that you may pull from System 2 for additional insights.
Let’s say you meet with a woman named Jan for an interview. She’s easy to talk to, seems amicable, and easy-going. Your System 1 brain pulls from past experiences with similar individuals, and you jump to the conclusion that she would probably be a good fit for your team. System 1 is what forms that first impression, while System 2 provides the analytical thought necessary to back it up and endorse your decision.
The Good and Bad of Thinking Fast
“Go with your gut” is a good thing, isn’t it? It can be. Your initial intuitions, feelings, and impressions can be important in your interactions, and many times it works out when you go with your gut.
System 1 is what helps you create a picture of the world as you move through it. For the most part, we spend the majority of our day thinking fast, and that system is accurate enough for us to move throughout our day.
However, there are times when jumping to conclusions can also lead to errors of bias. If you solely rely on thinking fast, you may miss opportunities, or misjudge situations. For those moments when you may struggle with processing the information in front of you, System 2 comes in to help with the analytical, reflection, problem-solving part of your brain.
Thinking Slow (System 2)
System 2 is the slower, more thoughtful sibling to System 1.
While System 1 is the younger sibling who screams “Let’s go!” and jumps off a roof into the pool because it seems fun, System 2 is the more responsible older sibling who takes time to assess the risks of jumping off of the roof and decides it’s probably better not to do it.
Slow thinking is pretty much what it sounds like—slowing down your thinking instead of reacting. It’s taking the time to analyze a situation and gathering data before making a decision. If you’re deciding whether to work with a vendor or not, you’re more likely to deploy slower thinking. You get more information on the vendor, vet their values and see if they align with yours, maybe even talk to other companies who have worked with that same vendor.
By making a conscious effort to slow your thinking and think more critically, you will make a better-informed decision, rather than jumping the gun.
Slow thinking is best applied to working with people, whether they’re outside vendors or members of your own organization. Fast impressions may lead to making decisions based on biases and quick judgements. Within System 1, you may find yourself overestimating or underestimating those around you, or constructing false narratives based on surface-level observations. But when you apply both systems to your business, you’ll be able to make the best types of decisions—decisions that you feel in your gut are the right ones, and which are supported by analyzing all the information available to you.
Applying Fast and Slow Thinking to Your Business
In the example of the interview with Jan that I mentioned earlier, you would apply both fast and slow thinking to the process of hiring a new member of your team.
System 1 is activated when you first meet Jan. She gives you a great first impression, and your gut reaction is that she’d be a valuable member of your team. And why wouldn’t she be? She’s friendly, says she’s a team player, and a good culture fit upon first impression.
The problem with relying solely on fast thinking is that you can often overlook certain things or make the wrong judgment based on initial impressions.
After your interview with Jan, you start going through her resume and the experience with her more deeply, as well as talking to her references and previous employers. System 2 is activated, where you start to gather data and analyze her to see if she’d truly be a good fit. Turns out, her experience isn’t exactly the right fit for the role, and she’s had some issues with needing to be micromanaged in the past.
If you had solely relied only on System 1 to make your decision, you probably would’ve hired Jan on the spot. Luckily, you’re listening to this podcast and are cognizant of making sure you are thinking slow as well as fast. Once you’ve slowed down your brain and gathered enough data, you can make a well-rounded and informed decision.
Unfortunately, Jan will not be joining your team anytime soon.
Now that you’re aware that you actually spend more time in System 1, jumping to conclusions, you can be more intentional about activating System 2, or slow thinking, when it comes to your judgments. You can do this by practicing taking a step back once System 1 is activated. When you come across certain situations or people, you’ll naturally and automatically form judgments. In those moments, take a step back and ask yourself to pause and gather more data before making any actionable decisions. You’ll be more powerful as a leader because of it.
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