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Leadership Lessons From Daniel Kahneman

March 28, 2024 by Twan van de Kerkhof

Daniel Kahneman, the eminent psychologist and Nobel laureate who passed away yesterday, had important lessons for leaders, for example about using their intuition. In his fascinating bestseller, Thinking, Fast and Slow he explained that human beings have two systems of thought: System 1 and System 2. In System 1, people make a lot of decisions at a very fast pace based on a set of heuristics. This is essentially the automaton of human decision-making; it does not take much energy and is used for anything and everything. It allows you to ‘shoot from the hip’ and quickly come up with reasonably adequate answers to questions that are not too difficult. You may cut some corners but you get where you want to be quickly with minimum effort and maximum result. System 1 evolved to quickly escape dangers. You don’t take the time to carefully consider what to do when you see a lion; you just get away, maybe even before you are fully aware of the lion.

In System 2, a person is more careful and reflects on each point that needs to be considered before making a decision. This is what we call ‘thinking’. System 2 takes a lot of energy; therefore, the body prefers System 1. System 2 comes into action especially when oversights could be made which would have major consequences. It usually results in fewer mistakes, and if need be, you could retrace your steps and make rectifications because you are fully aware of how you arrived at your solution.

System 1 is convenient for daily decisions, but it does have some significant drawbacks. One is that the decisions are based only on the information that is available. Information that may be important, but is not readily available is neglected. You think that what you see is everything that exists. The danger of this is that you jump to conclusions too quickly. The lesson for leaders is to never rely entirely on what they see and always look for additional information outside their field of vision. Data adds information to the wisdom of intuition.

A second disadvantage of System 1 is that too much attention is paid to the story and too little to the accuracy of the data. Plausible is confused with probable. System 1 loves stories that are appealing, and preferably not too complicated. The coherence of the story is trusted more than its truth and therefore when operating from System 1, we are susceptible to framing. Conversely, we are also then quick to construe that a poorly constructed story is untrue, even though reality can sometimes be stranger than fiction. We fool ourselves with stories that meet our need for clear, recognizable patterns. System 1 also looks for causality: an event always has a cause, preferably as obvious as possible. Even if no causal connections have been demonstrated, they are woven into the story. The lesson for leaders is to actively run their bullshit radar on stories that sound good but may not be true.

Blindly relying on intuition is a pitfall for leaders. Like most people, they make decisions unconsciously and intuitively, and only later look for arguments to rationalize their decision. They are often agreed with because of their high position and their ability to expertly explain why they believe what they believe, but that doesn’t necessarily mean it is a good decision.

It is important for leaders to use System 1 where they can, remain aware of the drawbacks, and switch to System 2 when necessary. A well-developed gut feeling is a wonderful quality, but it is still necessary to let the head talk with the gut. Relying solely on the gut can lead to complacency and overconfidence. The assumptions behind and beneath the gut feeling must be continually tested. When leaders are successful, they run the risk of falling into a cycle of confirmation and self-affirmation, seeing only green lights and ignoring them when they turn red. Leaders should not only tolerate others drilling holes in their assumptions and premises, they should welcome and even invite it. Questions such as: “Is that right?” and “Is that really true?” cannot be asked often enough. Testing and questioning assumptions and premises, including their own, does not make decision-making easier for leaders and can even put a dent in their egos, but it does lead to better results for the organization.