Why People Don't Make Optimal Decisions

I recently read a book by the Nobel Prize winner Daniel Kahneman. He won the Noble Prize in Economics, although he is a psychologist. Kahneman pointed out that economic theories often assume people act rationally and make the most optimal decisions to benefit themselves. However, Kahneman showed through several psychological examples that people often do not make these rational decisions. Why is that?

Kahneman explains people have the capacity to think in two primary ways. People have an automatic, intuitive way of thinking which immediately processes the world around us. Examples of this include your ability to walk, avoid simple objects, or complete any task with minimal mental effort.

The second way in which people think is more what we consider “deep thought.” Examples of this type of thinking might include solving challenging math problems, examining statistics, or really any task that will require your undivided attention.

This is important to know, because Kahneman shows people don’t typically engage their “deep thought” process when making decisions, which is necessary for people to make rational optimal decisions. Rather, people often use their intuitive thinking process, which is wired to help us with basic survival but not designed to help us balance complicated decisions that involve weighing several facts and statistics.

The importance of this is astounding, and it leads to another interesting fact about the human condition. Because people tend to make decisions using their intuitive thought instead of their deep thought, peoples’ decisions tend to have a lot of bias.  The intuitive way of thinking is easily influenced, or “primed” by the environment surrounding it, often without calling on the deep thought process to check facts and verify preconceived notions.

Understanding this is how people are naturally wired can help us make better decisions. When we are ready to make quick decisions at work, we should be reminded how biased those decisions can actually be if we aren’t willing to slow down and engage a deeper thought process. After all, this is the only way the most optimal result will be found.

This knowledge can also be used to improve public policy. Kahneman noted a study that showed organ donation rates are much higher in countries that require people to opt-out of the process, instead of opt-in. Kahneman believes that people have to engage their deep through process to determine whether or not they truly want to be a donor. With people naturally wired to make quick intuitive decisions, they tend not to disagree much with the decision being presented, and don’t want to have to think about opting in or opting out.