Thinking, fast and slow: A must read for executives

One of the best business books of 2011 has some excellent and original advice for business executives. This IBJ regular contributor distills the advice into seven suggestions.

 

The executive’s job is straightforward:  judge situations and make decisions; execute; evaluate progress; make adjustments; learn from your mistakes.  These are intensely cerebral activities.  Good executives are good thinkers.  The difference in outcomes between rigorous and sloppy executive thinking is usually like night and day.

 

Enter Daniel Kahneman with a new book:  Thinking, Fast and Slow (Doubleday Canada, 2011).  Open your mind to Kahneman and you will be on your way to being a better executive.  There is a lot going on in the executive’s head that the executive may not be entirely aware of that profoundly affects performance.

 

Daniel Kahneman is Eugene Higgins Professor of Psychology Emeritus at Princeton University.  He is the recipient of the 2002 Nobel Prize in Economic Sciences for his work on judgment and decision-making with Amos Tversky.  Kahneman points out that Tversky would have shared his Nobel Prize had he not died in 1996.

 

            Here are some reasons for executives to invest time in Kahneman:

 

First, judgment and decision-making are the executive’s bread and butter.  Thinking, Fast and Slow is a trip through a lifetime of research in judgment and decision-making by one of the world’s preeminent scholars.  When a brilliant scholar puts a lifetime into studying your bread and butter, you are likely to be well rewarded for taking a serious look.

 

This is the scholar speaking directly to the reader about his life’s work, not an interpretation through a journalist or other intermediary.  Included as appendices to the book are two articles by Kahneman and Tversky that executives will find interesting, in that they connect the original scholarship with the Nobel Prize with the wide-ranging insights of the book.

 

Second, you will learn and appreciate that not all thinking is the same.  Kahneman distinguishes between fast thinking and slow thinking.  Fast thinking is immediate, automatic and intuitive; slow thinking is deliberate, effortful and controlled.  It seems obvious that the more important the executive decision, the more slow thinking should be brought to bear, though that is not always what happens in the executive suite.  Fast thinking dominates our day-to-day life and works well most of the time. But when it doesn’t, things can go very badly, very quickly.

 

It takes discipline to slow down as the stakes and complexity rise, and understanding that your brain has fast and slow speeds may bring some of that discipline.  Merely saying “It’s time to slow things down” may help.  Because slow thinking is not automatic, it needs to be willfully engaged.

 

Slow thinking is the thinking Thomas J. Watson, the builder of IBM from 1914 until his death in 1956, was surely talking about in his famous quote, “All the problems of the world could be settled easily if men were only willing to think.  The trouble is that men very often resort to all sorts of devices in order not to think, because thinking is such hard work.”

 

Getting people to actively “THINK” so obsessed Watson that he had the word plastered on walls and desks all over IBM.  I expect Watson would have been a big fan of Kahneman.

 

Third, you will get insight into how your brain can play tricks on you.  You will meet the availability bias, which is the tendency to rely on readily available information in making judgments and decisions, not the information you actually need.  You will meet the anchoring bias, where the presentation of essentially any number conditions what we think a particular quantity should be, without ever having seriously thought about it.  You will meet the representativeness bias which makes us stereotype when we should be considering and measuring.  You will meet the confirmation bias where we make up our mind quickly on something and then in the analysis phase only select information that confirms our initial view.  A trip through these and other biases will be a real eye opener for many executives.

 

Fourth, executives often rely on the forecasts of experts like financial professionals, economists and political scientists.  The forecasts of these experts can amount to a tyranny.  If things go wrong it can prove calamitous to have overridden all those expert years of training, experience and scholarship and instead relied on your own amateur analysis and intuition.

 

Read Kahneman and you will never view the forecasts of experts the same again.  Suffice it to say they do not cover themselves in glory.  But Kahneman is charitable.  Forecasters are not wrong just because of how they think; they are wrong because the world is not predictable.  A healthy but respectful cynicism about experts is a good quality in executives and Kahneman will rev that up.

 

 

Fifth, every executive should take to heart Kahneman’s insights into the difference between luck and skill.  A recurring theme of the book is the huge role that luck, or the lack of it, plays in outcomes.  Skill should not be confused with “regression to the mean,” where uncertain activities like running a business can depart from the average and then return to the average on their own.  Reward systems will work best that make an effort to distinguish lucky performance from skilled performance.

 

Knowing when you are successful because you are lucky as opposed to skilled will make you a better executive; and a more humble, and probably better, person.  Just thinking about luck versus skill is a start.  An old financial market adage runs “don’t confuse a bull market with your own genius.”

 

Sixth, risk runs through everything an executive does.  Kahneman is splendid on risk and how your mind processes it.

 

Finally, executives are forever negotiating something and every negotiation implies an opponent on the other side of the table.  Knowing your opponent is key to good negotiating.  Kahneman’s insights into thinking apply not only to your thinking but the thinking of those across the table from you, which cannot help but be useful.  This reminds one of Sun Tzu in the Art of War.  “If you know the enemy and know yourself, you need not fear the result of a hundred battles.”

 

Executives are always thinking but they probably don’t think much about how they think.  Daniel Kahneman has written a book that will make you think about thinking.  It is a tune-up on thinking.  There is a lot of value here.  Read it!  But don’t read it fast!

 

 

The executive’s job is straightforward:  judge situations and make decisions; execute; evaluate progress; make adjustments; learn from your mistakes.  These are intensely cerebral activities.  Good executives are good thinkers.  The difference in outcomes between rigorous and sloppy executive thinking is usually like night and day.

            Enter Daniel Kahneman with a new book:  Thinking, Fast and Slow (Doubleday Canada, 2011).  Open your mind to Kahneman and you will be on your way to being a better executive.  There is a lot going on in the executive’s head that the executive may not be entirely aware of that profoundly affects performance.

            Daniel Kahneman is Eugene Higgins Professor of Psychology Emeritus at Princeton University.  He is the recipient of the 2002 Nobel Prize in Economic Sciences for his work on judgment and decision-making with Amos Tversky.  Kahneman points out that Tversky would have shared his Nobel Prize had he not died in 1996.

            Here are some reasons for executives to invest time in Kahneman:

            First, judgment and decision-making are the executive’s bread and butter.  Thinking, Fast and Slow is a trip through a lifetime of research in judgment and decision-making by one of the world’s preeminent scholars.  When a brilliant scholar puts a lifetime into studying your bread and butter, you are likely to be well rewarded for taking a serious look.

            This is the scholar speaking directly to the reader about his life’s work, not an interpretation through a journalist or other intermediary.  Included as appendices to the book are two articles by Kahneman and Tversky that executives will find interesting, in that they connect the original scholarship with the Nobel Prize with the wide-ranging insights of the book.

            Second, you will learn and appreciate that not all thinking is the same.  Kahneman distinguishes between fast thinking and slow thinking.  Fast thinking is immediate, automatic and intuitive; slow thinking is deliberate, effortful and controlled.  It seems obvious that the more important the executive decision, the more slow thinking should be brought to bear, though that is not always what happens in the executive suite.  Fast thinking dominates our day-to-day life and works well most of the time. But when it doesn’t, things can go very badly, very quickly.

            It takes discipline to slow down as the stakes and complexity rise, and understanding that your brain has fast and slow speeds may bring some of that discipline.  Merely saying “It’s time to slow things down” may help.  Because slow thinking is not automatic, it needs to be willfully engaged.

            Slow thinking is the thinking Thomas J. Watson, the builder of IBM from 1914 until his death in 1956, was surely talking about in his famous quote, “All the problems of the world could be settled easily if men were only willing to think.  The trouble is that men very often resort to all sorts of devices in order not to think, because thinking is such hard work.”

            Getting people to actively “THINK” so obsessed Watson that he had the word plastered on walls and desks all over IBM.  I expect Watson would have been a big fan of Kahneman.

            Third, you will get insight into how your brain can play tricks on you.  You will meet the availability bias, which is the tendency to rely on readily available information in making judgments and decisions, not the information you actually need.  You will meet the anchoring bias, where the presentation of essentially any number conditions what we think a particular quantity should be, without ever having seriously thought about it.  You will meet the representativeness bias which makes us stereotype when we should be considering and measuring.  You will meet the confirmation bias where we make up our mind quickly on something and then in the analysis phase only select information that confirms our initial view.  A trip through these and other biases will be a real eye opener for many executives.

            Fourth, executives often rely on the forecasts of experts like financial professionals, economists and political scientists.  The forecasts of these experts can amount to a tyranny.  If things go wrong it can prove calamitous to have overridden all those expert years of training, experience and scholarship and instead relied on your own amateur analysis and intuition.

            Read Kahneman and you will never view the forecasts of experts the same again.  Suffice it to say they do not cover themselves in glory.  But Kahneman is charitable.  Forecasters are not wrong just because of how they think; they are wrong because the world is not predictable.  A healthy but respectful cynicism about experts is a good quality in executives and Kahneman will rev that up.

           

            Fifth, every executive should take to heart Kahneman’s insights into the difference between luck and skill.  A recurring theme of the book is the huge role that luck, or the lack of it, plays in outcomes.  Skill should not be confused with “regression to the mean,” where uncertain activities like running a business can depart from the average and then return to the average on their own.  Reward systems will work best that make an effort to distinguish lucky performance from skilled performance.

            Knowing when you are successful because you are lucky as opposed to skilled will make you a better executive; and a more humble, and probably better, person.  Just thinking about luck versus skill is a start.  An old financial market adage runs “don’t confuse a bull market with your own genius.”

            Sixth, risk runs through everything an executive does.  Kahneman is splendid on risk and how your mind processes it.

            Finally, executives are forever negotiating something and every negotiation implies an opponent on the other side of the table.  Knowing your opponent is key to good negotiating.  Kahneman’s insights into thinking apply not only to your thinking but the thinking of those across the table from you, which cannot help but be useful.  This reminds one of Sun Tzu in the Art of War.  “If you know the enemy and know yourself, you need not fear the result of a hundred battles.”

            Executives are always thinking but they probably don’t think much about how they think.  Daniel Kahneman has written a book that will make you think about thinking.  It is a tune-up on thinking.  There is a lot of value here.  Read it!  But don’t read it fast!