Daniel Kahneman's two systems of thinking

In the book "Thinking, fast and slow", writen by the nobel price winner in econonics and professor in psychology Daniel Kahneman, two different methods of thinking is presented, called system 1 and 2.

System 1 rely on knowledge and rutine, and is engaged when a subject is dealing with a task that requires little to no effort, e.g. simple mathematical calculations or rutine work . System 2 is engaged when dealing with tasks in which attention is required and necessary for completing the task, e.g. searching for at specific person in a crowd or parallel parking a car . Both of the systems run simultaneously whenever we are awake, normally system 2 is in a low effort mode, where system 1 "continuously reports impressions, intuitions, intensions and feelings". These impressions and intuitions can be turned into beliefs and voluntary actions by system 2. In decision making under uncertainty, a cognative bias can thus interfere with the decision making process and have a impact on the thinking of system 2. It is therefore a general misunderstanding that humans think logically, which is why the two systems are relevant in project management.

This article will focus on the correlation between the two systems of thinking and forecasting in project management. More precisely the article will investigate the two systems internal interaction when affected by the anchoring effect and its influence on the optimistic bias when predicting cost, duration and benefits of projects.

Introduction to the two systems

It has been known for several decades that’s humans have two different modes of thinking. Kahneman adopts the terms system 1 and 2 with the following definition System 1 is fast and automatic and works with little or no effort, and include innate skills, as recognizing objects, persons, and places as well as orienting attention to important events around us. System 1 also include routine work, like solving simple mathematical calculations. When asked the question 2+2=, people will, if having a basic understanding for mathematics, unavoidably think of number 4. This is because the mind has learned to link the two assertions together. System 2 allocates attention to mental activities that requires it, which means that it would not be possible to for system 2 to focus on several attention requiring activities at once, like calculating larger multiplications while focusing on when a traffic light turns green. Most of the time, system 1 runs in an automatic state that continuously generates suggestions, intuitions, etc. for system 2, which if approved, can be turned into actions, without much action by system 2. In a situation where system 1 can’t handle a problem or a task by itself, it will call for system 2, like when asked to calculate a larger mathematical multiplication. The biggest hurdle in the way that the two systems work, is that system 1 can create a bias suggestions and intuitions for system 2. System 1 can’t be turned off, and therefore it will always report to system 2, even though system 2 disapproves the suggestion. On the other hand, it would not be possible only to rely on system 2, both because of the speed of which it operates in, but also because of the limited span of attention it can give.

Importance in project management

There are tasks and decisions in project management, whereas it is an advantage to consider the two systems of thinking. Mainly because the way that the two systems interact, when taking decisions, predicting the future etc. The most

Bias and the two systems in project management

The anchoring effect

Earlier research done by Kahneman together with Amos Tversky showed, that when people were presented with a number about a subject before asked to take a stand on the same subject, the number presented would have great impact on the final decision . This is what is called the anchoring effect. Even though there is no correlation between the anchor presented to people and their answer about a different subject, they would still interfere. This is one of the things that makes system 2 susceptible to biasing influences, and therefore a vital weakness in projects and decisions in general. As cited earlier, system 2 is continuously influenced with impressions, intuitions etc. witch means that people, reluctantly, take decisions without having a logic argumentation.

There are several parts of projects where the anchoring effect is important to consider, e.g: project cost management . Consider the following situation, a project manager is continuously working on two projects which is far from each other in cost. When shifting between the two projets, the former project is going to make a anchor in the projects managers mind. E.g. In the large project the project manager have to order 1000 windows for a construction project, and because of the large quantity, the project manager can get a considerable discount, but still would have to accept a high total price . When the project manager then soon after starts working on the other smaller project, this price would have left an anchor. Which means that the project manager, both would make higher estimates of total cost, but also lower estimation cost per window/unit because the lacking of quantity discount.

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Planning fallacy

People involved in projects generally underestimate the time and resources needed for finishing the project or a task within the project, aswell as overestimating the final impact of the project. Kahneman and Tversky uses the term planning falacy to discribe this concept, with the definition that persons involved in projects will predict a unrealistic close to best-case scenarios that could be improved by comparing the project to statistics of similar projects. The main reason for the planning falacy is the optimistic bias, which is a bias that makes people think that they are less likely be victims to negative events. Another reason is the lack of regonizing of the unkown-unknowns, which is the One reason for the planning falacy, is the participants lack of knowledge or allowance to what is called the unknown-unknowns, which in project management, can be future events or hurdles that the participants of project are aware of nor understand.

Another thing discorvered by kahneman is the tendensy to ignore anchors, when operating under the planning fallacy. E.g. the same project manager as in the previus example, that works in the construction industry, has in previus large projects suffert under the planning falacy, in the process of installing windows in the building. One should think that the that the preveus projets would leave and anchor, but the optimism bias can overshine this