Nobel Laureate Daniel Kahneman's book, Thinking Fast And Slow, exposes two systems in our brain that helps us make decisions. One system is fast and impressive, but it can be error prone, possibly leading to less than optimal decisions. The other system is slow and not immediately impressive, but more reliable for complex decisions.
Your brain, however, wants to be fast , jumping to conclusions, solving problems. But, these "Gut" decisions may mask errors in judgement.
An easy way to show how this conflict of 2 systems affects you is the bat and ball question.
A baseball bat and a ball cost $1.10. The bat costs $1 more than the ball. How much does the ball cost?
If your "Gut" answer is $0.10, you have been misled by system 1 thinking.
However, if you use your system 2 thinking, you'll see that the ball must cost $0.05. Then, if the bat costs $1 more, it comes out to $1.05, which, combined, gives you $1.10.
Beware, however, sometimes your brain perceives problems as more simple than they actually are. System 1 thinks it can handle it, but unknowingly it can’t, and you end up making a mistake.
"Gut" decisions come from System 1 thinking.
System 1 is intuitive, fast, automatic, effortless, implicit, emotional and impressive. System 2, on the other hand, is slow, more deliberative, logical, requires effort and is not immediately impressive.
Most daily decisions are made using System 1 thinking. In many cases, this works fine. Our brains use System 1 thinking to avoid danger – for example, when crossing a busy road. System 1 thinking, however, can let us down when making important decisions. These important decisions require System 2 thinking.
Unfortunately, owing to pressures of time, managers all too often rely on System 1 thinking (Chugh 2004). Moreover, sometimes we use System 1 thinking even when we think we are using System 2. This results in sub-optimal decisions being made.
Specifically, managers may set out to make rational decisions but may lack key information. There are several possible reasons for this:
As a consequence, managers often overlook optimal decisions for ones that seem favorable or reasonable – ‘satisfiers’ or, in other words, ‘good enough’ (Bazerman and Moore 2017).