I’m very pleased to welcome a guest blog post, written today by Julia Biedry. As a keen fan of Daniel Kahneman’s work, Julia has chosen to delve a bit into the psychology behind important business decisions…

From grade school up to college and beyond, we have constantly been fed the same platitude that our first instinct is probably the right answer. We’re told to listen to our gut and believe our intuition, and when in doubt, our subconscious will deliver. But that’s only sometimes how it works.

Our minds and the way we think actually work in an intricate interplay between two systems of thought. As the research of Nobel Laureate Daniel Kahneman indicates in his bestseller, Thinking Fast and Slow, the gut instinct (or System 1) is not always to be trusted. While it’s helpful in choosing a latte at Starbucks or indicating that we should move out of the way of oncoming traffic, our gut instinct is at best a snap decision made on incomplete information filtered from our surroundings.

When we first encounter a problem, System 1 goes to work. System 1 is the immediate responder, the flash of instinct or intuition that provides a fast answer. While System 1 does an excellent job of keeping us alive and out of danger, it works to actually reduce the amount of information that goes into a decision. Standing on a crowded street corner? System 1 filters out the sounds and scents of the noisy city to focus you on an oncoming taxi, telling you not to step into the street. However – if faced with an important business decision in the boardroom – System 1 may lead you astray.

So how does this apply to the workplace? The problem is, we don’t know the limits of our own knowledge, and where our subconscious is substituting stereotypes or previous biases for real information. What becomes dangerous is a problem our subconscious thinks it can solve, but lacks the necessary information to do so.  In these cases, System 1 may substitute superstition, bias and stereotype for actual information in arriving at an answer. In many cases, System 1 substitutes an easier question for the question being asked, and thus arrives at the wrong conclusion.

An example is the classic brainteaser in which a bat and a ball cost $1.10 together, and the bat costs $1 more than the ball. When asked how much the ball costs, many will blurt out the answer of $0.10. In this case, System 1 is trading in a simple substitution for what is in reality a system of equations question. The ball, in reality, costs $0.05. System 2, our slow, reasoned thinking, is required to kick in and solve this problem by performing a mathematical equation. However, many avoid the effort involved in solving a problem correctly by remaining with System 1’s lazy, unreasoned answer.

System 2 takes more energy and effort, yes, but it is necessary in the workplace to avoid lazy thinking and arrive at a reasoned answer based on logic and hard data. To arrive at process efficiency and world-class operations, the right questions must be asked, and answered. When faced with an analysis of the current state of business, process owners can either choose to ask the lazy question: “Are we meeting our KPI’s?” or the considered question: “Are our processes improving over time?” when faced with an efficiency question: “Is the staff hardworking?” or: “Is the staff hard at work fixing the wrong problems?”. Substituting an easy question for a hard one can lead to the dangers of backwardness and stagnation.

To avoid complacency, group-think, and filtered information, we need to overcome the biases of System 1 and utilize System 2 to make decisions. In business, we need to have formal models to help drive precise thinking for important matters. For example, process owners should utilize capability assessment models and move towards process excellence by identifying the right clues, asking the right questions, and understanding when change needs to be made. Having the right data to solve the right problems is a necessary step towards making transformation and change a business-as-usual process.

Business optimization is a process, not a product, and we need to overcome our brain’s automatic, lazy thinking to arrive at the right business decisions. By harnessing our brain’s true power to utilize System 1 and System 2 in harmony, we can overcome our gut reactions and outsmart our own human nature.

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Thanks for reading!

For a deeper exploration of Daniel Kahneman’s work and how it applies to business optimization, watch: Thinking Fast and Slow: 3 Keys to Process Excellence