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There's More to Great Decision-Making Than Just Instinct

Nobel Laureate Daniel Kahneman shares the cognitive processes behind decision making--and how you can use them to your advantage.
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There's More to Great Decision-Making Than Just Instinct
 

Nobel Laureate Daniel Kahneman shares the cognitive processes behind decision making--and how you can use them to your advantage.

There's More to Great Decision-Making Than Just Instinct

Nobel Laureate Daniel Kahneman shares the cognitive processes behind decision making--and how you can use them to your advantage.

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“Go with your gut.” 

Based on the idea that your first instinct is usually the best, this classic idiom gets thrown around all the time--tossed out in times of uncertainty when those “right decisions” have not yet fully presented themselves. But sometimes this “gut philosophy” might not be the best option, according to Nobel Laureate Daniel Kahneman. 

Author of Thinking, Fast and Slow, Kahneman sat down with Inc. Editor in Chief Eric Schurenberg earlier this year and explained--in a six part video series--the cognitive processes and pitfalls people face in the decision-making process--including when “going with your gut” can lead you astray. 

“I think most of us think that we have reason for what we are doing-- but in fact, we are doing what we are doing very largely because of reasons that we are not necessarily completely aware of,” says Kahneman. 

So whether you decide things fast or slow, it's worth at least understanding some of what's behind your mind's work. Here are some takeaways from Kahneman’s interview: 

Don’t mistake random events for causes. 

According to Kahneman, when events take place, it is our instinct to write stories surrounding those events. We naturally create causal relationships that may not actually exist to make sense of what has happened.

“That is something that will happen because there is this search for causes,” says Kahneman. “Our memory constructs casual stories on the fly and it does that without intention.”

Know that what you see is not all there is.

“We tend not to look for what we don’t see. We construct stories out of evidence that is very slight, very partial and could be biased but we make the best story possible,” says Kahneman. 

People have a tendency to accept that what they know is all there is, and make decisions prematurely without spending the time to learn more. 

“Its not necessarily that we don’t like to work but when there are two ways of doing two things--one easy and one hard--we naturally gravitate to the easy way,” Kahneman adds.  “So the bias toward finding the easy way means that sometimes we pick the easy way and we get the wrong answer. “

Use anchoring to your advantage.

Kahneman suggests using a concept typically used in negotiations referred to as anchoring. For example, in a manufacturing negotiation, someone could set a price off the bat that might be arbitrary but regardless that initial price could then set the tone for the rest of the negotiation. 

Kahneman advises you to use anchoring to your advantage by making the first move. If you can’t he instructs that you force their offer off the table.

“I used to teach my students that if there is a number [someone shares] that is sort of outrageous to make a scene just to wipe it out and start from a more reasonable number,” says Kahneman. “Often in more or less serious negotiations we can’t help but feel that the other side has some kind of reason for the number that they put up and that is how we get anchored, you need to discredit that number.”

Personal equals impact.

The mind uses a shortcut--the availability bias--where it reaches for the memory or impression that had the greatest impact or was the most recent. Kahneman stresses that when you tell personal stories, they will make a stronger impact. 

“When you describe that the probability of dying from a drug is .01 percent, there really is no impact, but when you say one person in 1000 when treated with this drug will die. It is the same information, the same number--but one of them is easier to visualize and if it is easier to visualize it is going to have a much greater impact," he says. 

Don’t be fooled by outliers.

In every body of data, there will be outliers--or regression to the mean. According to Kahneman, when people are in system one they don’t consider outliers, so it is important to slow down recognize if an occurrence is an example of regression to the mean or if it is a reasonable reflection of the sample.  

“Regression to the mean is about particular observations so if you see someone makes a brilliant impression in an interview--it’s likely that they are less brilliant than that. If a fund does extraordinarily well one year--hang on. If a CEO has a terrible year--wait. It might be better than that,” says Kahneman. “That’s regression to the mean and we really don’t tend to do that. We see a CEO stumbling in his first year and we get very pessimistic--more than we should be.” 

IMAGE: Eirik Solheim/Flickr
Last updated: Sep 17, 2013

ABIGAIL TRACY is a staff reporter for Inc. magazine. Previously, she worked for Seattle Metropolitan magazine and Chicago magazine.
@abigailtracy




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