Smart Decision-Making for Leaders Using System 1 and 2 Thinking
The Balance Between 'Human' and 'Machine'
Imagine you are driving on your regular commute to work, and the car in front of you abruptly makes a sudden stop.
What do you do?
Most people would instinctively press the brakes.
That is System 1 thinking, which is the basic mode of thought that we humans have had for millions of years, along with the rest of the animal species.
But humans have also evolved a second type of thought system, which is called System 2 thinking.
These systems play a crucial role in every single decision you make in your life, every single day. As a leader, your decision-making process is critical to your success and the success of your team.
In this article, we will dive deep into these systems, and understand them from a leader’s perspective. We will discuss practical strategies and tactics that will help you to become a more effective leader.
Understanding System 1 and System 2 Thinking
Israeli-American psychologist and Nobel Laureate Daniel Kahneman is the father of modern behavioral economics. His work has influenced how we see thinking, decisions, risk, and even happiness.
In his book Thinking, Fast and Slow, he shows us his thoughts on this field.
System 1 and System 2 thinking describe two distinct modes of thought.
System 1 operates automatically and quickly, with little or no effort and no sense of voluntary control. It includes intuitive, emotional, and fast thinking processes. When you make snap judgments or rely on gut feelings, you’re engaging System 1.
System 2, on the other hand, allocates attention to the more effort-taking mental activities that demand it, including complex decision-making and conscious reasoning. This system is slower, more deliberate, and more logical. When you think about long-term strategies or solve complex problems, you’re using System 2.
In simple terms, I like to think of System 1 as our ‘human’ approach because it reflects our animal instincts, and has its links to our ‘fight or flight’ response to situations that need that.
System 2, on the other hand, is our ‘systems’ approach. This is where humans (and many advanced animals) are able to use their intellectural, logical thinking skills to find solutions to more complex problems, considering future implications of your decision.
Needless to say, both of these systems are crucial for our survival, and for our progress.
Applying System 1 and System 2 in Leadership
As a leader, both systems are crucial. However, the key is knowing when to rely on each. Let’s discuss a few scenarios where each of these systems come in handy for leaders.
Leveraging System 1 Thinking
Quick Decisions: In fast-paced environments, where time is of the essence, System 1 thinking allows you to make quick decisions. For example, if a project hits an unexpected snag and a rapid response is needed to keep things on track, you may need to make a quick decision to bring it back on track.
Reading People: Leadership is about knowing and meeting your team’s needs and emotions. As humans, we are naturally intuitive, and we can tell what the other person may be going through, and System 1 thinking can be helpful in reading those emotional cues and body language.
Crisis Management: In crisis situations, System 1 thinking can be crucial. If you run into a crisis, you need to act swiftly as you don’t have time on your side. While you may need to have a longer-term ‘fix’, what you need in the moment is an immediate way to stabilize the situation.
System 1 thinking is core to our human nature, and it can be powerful. However, it can also be prone to biases and errors. Your intuition, as much as you want to believe, may not always be right. Since you don’t have access to the full details of the situation, you may end up making decisions that cause more harm than good.
As a leader, use the power of System 1 thinking. But, don’t rely on it completely.
Leveraging System 2 Thinking
Strategic Planning: As a leader, you need to plan for long-term success with strategic planning for your business and your team. What project should you invest your energies on in the coming year? How should you set up the team for success? etc. This requires System 2 thinking as it involves considering various scenarios, data points such as market conditions and team dynamics. These decisions can have a major impact on your organization, and need to be made thoughtfully.
Complex Problem-Solving: In your role as a leader, you come across a number of complex problems that need your attention. How do you respond to the up-and-coming competitors in your market? How do you address the customer escalation that has the potential to make or break your next deal? When you are faced with complex challenges like these that have many variables, you would leverage System 2 thinking to weigh the pros and cons and come up with a well-thought-out solution to the problem.
Retrospective: Not every decision you take, or project you lead, will succeed. As a leader, you should also take some time to reflect on past failures, and conduct retrospectives with your team to learn from your mistakes. You would leverage System 2 thinking to critically test your actions, decisions, and come up with ways to improve on those in the future.
From the discussion above, it’s evident that System 2 thinking plays a major part in your success as a leader. That said, you shouldn’t rely on it completely, either.
Balancing System 1 and System 2
To be an effective leader, you need to be able to balance the two modes of thinking.
How do you do that? Here are some strategies you can adopt to play that balancing act:
1. Recognize Your Biases: Know yourself, and your biases. System 1 thinking, in particular, is plauged with biases (as discussed previously). You might make a hasty decision, influenced by a co-worker’s words before your meeting. You could have reviewed all the data instead. When you must decide, check if it needs an immediate answer. If it does, are you being subconsciously influenced by any recent experience or bias?
2. Use a Decision-Making Framework: In my organization we have an established decision-making framework for all major decisions, and it greatly helps us to make better decisions. Decision-making frameworks can help you to ensure you are pulling in the right stakeholders, looking at the available data, and then making an informed decision.
3. Brainstorming + Structured Discussion: While having a structured approach to making decisions can be helpful, you also don’t want to miss out on the intuitive insights (System 1 ideas) from your team. You can use brainstorming sessions that encourage free flow of thoughts to gather inputs from your team, and then build on those inputs with more structured discussion. This could be a great way to combine the power of both System 1 and System 2 thinking.
4. Retrospectives: We discussed retrospectives earlier, and I cannot overstate how crucial these can be for you as a leader. When we take the time to reflect on our decisions and our actions, we are able to find loop-holes or issues that we may not have noticed ‘in the moment’. You can conduct retrospectives after a major milestone or at the end of a project release to recognize what went well, and what could be done better in the future. This will help you to better balance the System 1 and 2 thinking approaches as you make decisions in the future.
Examples of Effective Use of System 1 and System 2 in Leadership
Now, it’s time to look at practical examples of how you can apply the learning from this article in your role as a leader.
Let’s look at a few examples and situations.
Example 1: Managing a Crisis
Imagine you’re an IT leader at a tech company, and one of your major cloud services has suddenly gone offline, affecting millions of customers. Your initial response (System 1) is to calm your team, assess the immediate damage, and make quick decisions to get the system back online. For this, you would typically have an Incident Response Management system that follows a set playbook to get the system back up.
Once the crisis is under control, you switch to System 2 to analyze the cause of the downtime — why did it happen? How could we have avoided that? Your goal is to develop a plan to prevent future incidents such as this. Many companies have a Blameless Postmortem system to put in place at the end of every incident response.
Example 2: Strategic Business Expansion
Imagine you are a business leader at an established retail chain that is very successful in the UK. You’re now considering expanding your business into Germany. Your initial thoughts (System 1) might be driven by enthusiasm and a gut feeling that this market has potential.
Last time I visited Germany, you found the people to be very friendly, so it must be a great market for selling our products!
However, intuition is not enough when making a major strategic decision. You task your team to do detailed market research for the German market, assess the financials, and do a risk assessment (do Germans have an appetite for our product? What is the competition in Germany? Will there be a language barrier? etc.) This detailed, comprehensive evaluation will help you make an informed decision (System 2) that is based on hard data, not just intuition.
Example 3: Team Development
Imagine you lead the sales organization, and one of your sales team members — Mark — has just over-delivered on a major deal. You are particularly excited about this as you have always wanted to nail this particular client. You are so elated about this that your intuition tells you to promote Mark (System 1) based on his performance.
But, when you dig a bit deeper and look at the project data from the past few months, you realize that Mark was not working alone. In fact, Susan, another team member, did a major part of the work in building the sales pitch and making a strong case with the client. Susan was working behind the scenes and was less visible than Mark, but her share of contributions was much higher. This detailed evaluation of your team’s performance (System 2) convinces you that Mark may not be fully deserving of a promotion after all.
Conclusion
To conclude: as leaders we should leverage the power of both System 1 and System 2 thinking to make impactful decisions in our roles.
The key is in our ability to know when we can rely on quick, intuitive judgement (System 1) and when we should deep-dive and do a thorough, thoughtful analysis (System 2).
In most cases, we can leverage the power of both, by striking the right balance. That can help us become more effective leaders.
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