Kahneman's dual-system thinking

According to the Nobel-prize winner in Economics and author of the book Thinking, Fast and Slow, Daniel Kahneman, there is a model of human thinking, which consists of two separate thinking systems. The first system (System 1) can be described as instinctive, effortless and fast in contrast with the second one (System 2) which is more tedious, slow and related to analytic type of thinking. Dual -system or dual-process theory often links design thinking to the model of human thinking from cognitive psychology .

Both systems are connected to each other and, simultaneously, are in conflict. For instance, when a human is awake, both systems are active. Most of the times, System 1 acts more automatically and generates situations for the second system such as impressions, feelings etc. System 2 is referred to low-effort situations and the outcomes, when System 1 interferes, can be translated as beliefs or specific actions. System 1 is often connected to human’s daily behavior while System 2 normally is in charge of the final decisions.

Dual-system theory consists of numerous daily-life examples, which depict the common beliefs of humans as rational beings that are able of taking decisions analytically and impartially. The relation between a system of thinking and the management of a project is that a project is characterized by complex problems that need to be solved by applying this kind of systems such as the dual-system.

The main objective of this article is the application of the two-system thinking theory in decision-making, especially in the field of Project Management. By comprehending the engagement between the psychological part of thinking – systems and the multi – tasking parts of a project, the decisions that concerns cost, management or programming can be much easier and applicable.

The origin of the two-system thinking

Regarding the book of Kahneman, the terminology of the two systems was concerning the field of psychology for decades. An initial labeling on this kind of thinking was firstly introduced by the psychologists Keith Stanovich and Richard West referring to them as System 1 and System two . According to their proposal, System 1 can be described as an effortless, automatic, and a quick way of thinking. System 2 is associated with complex activities that necessitate concentration, effort, and time. The author takes a step forward on the use of this terminology in order to make them more comprehensible not only in the area of psychology, but also in the wider scientific fields that are related to the decision-making process. A more extensive analyzation of the two systems as well as their connection between them are presented below by several examples.

System 1

When it comes to System 1, the most appropriate word to describe its whole nature is automation . There are several everyday actions, behaviors, and activities that a human being usually does without making any effort or any thinking. This type of thinking requires inherent skills such the perception of the world from the time a human was born, the sense of fear, the recognition of simple items or the avoidance of unpleasant situations . Additionally, there are some skills that acquire knowledge, practice, and time in order to be characterized as “automatic” such as chess moves. Some simple examples of System 1 are:

• Easy mathematical functions like multiplication, addition etc. (3 x 3 = ?, 10 + 5 = ?)

• Expressions of disgust when smelled or shown something repulsive.

• Comprehension of simple sentences in your own language

• Detection of the source of a sound

• Fear of something horrifying like snakes, spiders, sharks etc.

• Recognition of hostility in a voice

• Replying to something simple such as which is the capital of a country (knowledge acquired)

• Driving a car on an empty road

• Finding strong chess moves or in general game moves (knowledge acquired by specialized players)

• Sensitive to changes

System 2

The well-known properties of System 2 are attention and concentration. The performance of each action or activity depends on the concentration of the human. For examples, when the attention is distracted, the performance does not have the expected outcome and it can be reported as bad performance or inadequate . Some examples are:

• Filling out important documents

• Price or quality comparison of products for future purchase

• Looking for a person with specific characteristics in the crowd

• Focusing on the voice of a specific person in the crowd.

• Observation of the appropriateness of a bad behavior in the workplace or a social situation

• Examination of the rationality or objectivity of a complex argument or statement

• Searching memory to distinguish a familiar sound or face

• Adaptation to new data like driving on the right instead of the left side of a car

Link between the two systems

Generally, a person identify himself as a “System 2 person” due to the fact that system 2 is connected with making choices and decisions and controlling his thoughts. But the truth is that System 1 is responsible for the initial concept of thinking that leads to the deliberate choices of the second system. Even though System 1 is accountable of generating convoluted ideas and plans, System 2 is in charge of constructing organized thoughts and plans. As Kahneman described in his book, both of them have their own operations, abilities, and limitations but when it comes to the control of attention, it is shared. Kahneman refers to System 2 as lazy and reluctant to make bigger effort than the one that is needed. This is the main reason that several misunderstandings occur, since System 2 often is guided by System 1 when simultaneously System 2 believes that it owns these decisions. Another difference between them is that System 2 has the ability to comply with the rules, make comparisons within attributes and make a decision between options when System 1 has none of these abilities because of its automatic nature .

Application in Project Management

The dual-system thinking in project management tasks is mainly applied in the decision-making phase or in general in project manager’s behavior. Furthermore, for a better understanding of the bias in a more professional level, Kahneman's systems of thinking can be applied by combining various psychological and economical disciplines. . It is worldwide known in the management scientific area that the decision-making phase is the cornerstone of a successful project. Project managers make several decisions during the project life cycle and thus they have to be extra cautious during this procedure. Biases and other numerous influences contribute to the final decisions . In this part, the two-type thinking makes its entrance by analyzing the phenomena below.

Anchoring Effect and Adjustment

D. Kahneman refers to the Anchoring Effect as “the human tendency to consider a specific value for an unknown quantity before estimating that quantity”. People’s judgments are mostly influenced by an uninformative number. The anchoring effect can be found in both systems. In more detail, anchoring effects are closely related to judgement tasks and choices that System 2 is responsible for. System 2 operates and works with tasks that are retrieved from memory or experience inside the System’s 1 automatic environment. That makes System 2 more vulnerable to the anchor’s effect and unable to control it . It is really important for a project manager to apply the Kahneman’s strategy of “adjust-and-anchor” which consists of the following steps: start from an anchoring number, assessment of the possibility of having too high or too low values, adjustment of the initial estimation by trying to be distanced from the “anchor”. For example, a project manager with experience in public projects, estimates the duration of a medium project, based on his experience on large scale projects (step one), then he tries to assess the possibility of a false time planning (step two) and finally he adjusts his experience to the current data (step three). However, there are plenty examples of insufficient adjustments which lead to unsuccessful projects and failures. This is a characteristic of a weak System 2 that highlights the importance of the knowledge of the dual-system thinking to project management applications .

Predictions

A Project Manager has a lot of responsibilities in a project lifecycle such as forecasting future advantages or failures. One of them could be during the risk management phase. Many of the predictive judgments rely on the excessive knowledge of the environment that a project is part of and observations on similar occasions. According to Kahneman, most of the judgements are influenced by a mixture of analysis and intuition. The link between the evidence and the predictive target is crucial, but indirect. System 2 is prone to rejecting irrelevant or false information even though System 1 is not capable of adjusting for smaller weaknesses. System 2 is responsible for correcting the intuitive predictions even if it makes the task or the project more complicated. According to Kahneman’s book, a common characteristic of unbiased predictions is possibility of predicting an extreme event or scenario, when the given information is reliable and adequate. Otherwise, when the predictions are “safer”, the possibility of predicting a rare or unusual event can be inconsiderable. System 1 consists of characteristics such as extreme predictions and the ability of predicting unusual situations based on weak evidence. The outcome of the application of the aforementioned is the generation of overconfident judgments. For instance, a project cost manager during the cost estimation process of a big construction project, needs valid information of previous projects of the same scale. The project manager should take into his/her consideration cost trade-offs and risks in order to achieve optimal costs for the project . By taking the information of the current project as well as several factors regarding future costs that may occur during the construction process into account, the project manager creates an initial cost estimation plan. In this example, the first type of thinking is associated with the project manager’s unbiased predictions for the total cost.

Successful Leadership

A successful project manager should have not only organizational skills, but also leadership skills. According to the PMBOK guide, some leadership characteristics are team guidance, communication, motivation, direction and critical thinking . A project manager considers human behavior, and he/she is constantly trying to be a good leader, since good leadership is one of the cornerstones of a successful project. Some of the qualities and skills of a leader is being visionary, collaborative, and last but not least, being confident. Several biases are on the game and a leader must be able to control them.

In contrast with the dual-system of thinking, System 1 is not famous for its ability to doubt by suppressing incertitude. Its theories and actions are based on mainly coherent data make it more biased by “unmistaken” facts. Furthermore, System 1 prefers to utilize information given by a small sample which consists of almost only rational data, instead of taking a bigger sample into consideration . Naturally, a bigger sample involves a variety of information, which many of them can be described as irrational, yet real. It is evident that system 1 can exaggerate the consistency of the data and represent a reality which makes too much sense even though it is not the real one. According to Kahneman, subjective confidence in a judgement is not equal to a correct judgement. The author recommends considering admissions of uncertainty without declaring high confidence based on an individual point of view, even if this individual strongly believes that his/her opinion is the true one. This phenomenon is called “Illusion of Validity” and it can be seen in several leadership situations, not only in the management field .

System 2 is prone to doubt since it takes inconsistent scenarios into account. This way of acting makes it harder for a leader to inspire confidence, because he/she make the decision-making part more complicated. But this kind of acting represents a more reasonable way of thinking which is closer to reality. To conclude with, a project manager in order to be characterized as a successful leader should take cognizance of the rest of his/her team (collaboration), have a holistic and systemic view of the project without considering not only the favorable factors, but any kind of given data, have the ability to distinguish in a big sample of information what is rational and useful and what is irrelevant (critical thinking) and seek consensus.

There are many management experts who study about cognitive biases without providing any help or explanation. . The authors of the article underline the fact that even when people are aware of the existence of biases, they are reluctant to discard them. Researchers have documented that at an organizational level, the possibilities of overcoming these biases are more that in the individual level. This observation is true regarding the power of team dynamic. Even though an individual cannot control his own biases, he can detect other’s fallacies and irrational judgement more easily. Maybe by adopting the second type of thinking, a project manager can acquire the trusting of the team and described as a successful leader, but it is not a norm.

Project planning fallacies

It is clear that Kahneman’s theory can be applied in several phases of management projects with either direct or indirect ways. Mostly in the management cost projects, the two-system thinking theory can be really fruitful, especially in the planning phase. Kahneman describes as planning fallacies the plans and forecasts that are not sensible scenarios and could be enhanced based on statistics of similar situations. In the book Thinking, Fast and Slow, there are a lot of planning fallacy examples, one of which is the following: During the planning phase of the construction of the new Scottish Parliament building in Edinburgh, the initial cost estimation back in July 1997 was approximately 40 £ million, but through numerous negotiations in during the 7 years of the building’s construction, the ultimate cost in 2004 was 431 £ million . It is obvious that when the final cost of a big project is almost eleven times bigger than the initial cost estimation, we are talking about a disastrous project cost management. This kind of errors in the initial budget estimation are not simple, nor innocent. Usually, project managers are tricked by the approval of their clients or superiors and led to make unrealistic decisions or they feel more optimistic than the usual. Decision makers must assess the cost and the benefits more realistically and rationally in order to make the final decision. It has been already mentioned that System 1 can be portrayed as optimistic and in case of scarce information, it is prone to jump to conclusions. System 1 has the ability to influence the careful decisions in a greater level than System 2. Even the outcome of the combination of the systematic System 1 with the “lazy” System 2 seems to be closer to the initial decisions generated by the first system. It is a crucial for the manager to set limits and restrictions in order to make more pragmatic decisions and limit the possibilities of failure.

Limitations

In this article, the application of the psychological Kahneman’s theory of the dual system thinking was demonstrated mainly in the decision-making phase of projects as well as in the leadership skills that a project manager should have. There is not a straight line in adopting a certain type of System. As it was described in the previous examples, when it comes to alternative ideas, imagination, optimism, and simple, effortless decisions then the autonomous System 1 is the most appropriate. When it comes to evaluation, reassessment and adjusting in the constantly changing environments, then System 2 thinking is more suitable. But in more complex projects, such as management projects, there is no false nor right application of these two systems. Kahneman’s model of the dual system thinking starts to be reviewed and applied among those working within the disciplines of psychology and economics as well as in our daily life.

Annotated Bibliography

1. The book "Thinking, Fast and Slow" by Daniel Kahneman is the main inspiration of this article. It contains information about the dual system of thinking by presenting a variety of examples. The core of the book is the impact of this system in psychology as well as in other scientific fields such as economy and management. With the extensive analyzation, the author’s objective is to make the reader more comfortable in using psychological terms and methods in businesses or simpler tasks.
2. The article "Before you make that big decision" by Kahneman, Lovallo, & Sibony aims to the comprehension of how crucial the decisions are in different institutions and organizations and their impact. It refers to the two-system of thinking and how this method can be applied in the decision-making phase. Retrieved by https://www.researchgate.net/publication/51453002_Before_you_make_that_big_decision
3. The book " A guide to the project management body of knowledge " by the Project Management Institute is a Project Management guide. It contains and describes every project management task, from the very basic terminology to more extensive study in specific project management fields.