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SYSTEM 1 & SYSTEM 2 THINKING

A business model for working out emotional forces that drive decision making

Daniel Kahneman is a psychologist and a professor at Princeton University. He is a Nobel prize winner for his work on behavioural economics. In the 1970s Kahneman worked at Stanford University with two more psychologists and behavioural economists - Amos Tversky and Richard Thaler. They developed theories about how we think and to what extent these thoughts are influenced by heuristics and biases.  It wasn’t until 2011, when Kahneman published these theories in his book Thinking, Fast And Slow, that they became well known and popular.

Behavioural economists recognise two levels of thinking when it comes to decision-making. The first level of thinking is called System 1. It is fast, automatic and arises out of the subconscious. It is a natural reaction to dealing with a situation. Humans are programmed to respond quickly and automatically for safety.  If we were in the jungle and saw a tiger in front of us, we wouldn’t spend much time analysing the situation, we would react immediately. Whether or not it is the right thing to do, we would most probably run.

System 1 thinking isn't confined just to decisions related to safety.  System 1 thinking is driven by emotions. The problem with System 1 thinking is that people often do not recognise that they are thinking. The process occurs in the subconscious and so it is difficult to unpick and describe. Even if we are prepared to admit that the choice of a product is driven by emotions we may find it difficult to say exactly what those emotions are and how they are working.

System 2 thinking is easier to analyse. It is the slow, calculating, conscious and logical way in which decisions are made. People find it easier to recognise and describe them. System 2 thinking is how most of us think we make decisions when in fact it could be a post-rationalisation that follows the true driver which was emotions.

People are still working out how to use System 1 and System 2 thinking in businesses. We know that emotions drive decisions but how do we use this knowledge practically?

We need to figure out exactly how emotions trigger actions. Department stores have long recognised that it pays to put the perfumery department on the ground floor close to where people enter the store. Nice smells put people in a good mood to linger and shop. Smells are used in supermarkets where the aroma of baking produces a queue at the bread counter.

There are other subtle influences on our emotions, some of which we may not be aware of. The use of colour can convert a powerful message. Blue is the colour of trust and reliability. Red is the colour of speed and courage. Orange and yellow communicate cheapness but also fun. Using colour in logos, on packaging and in promotions can carry our emotions down a certain path.

People say that they like innovation. New is a vitally important word in marketing. However, something that is so new it doesn’t seem familiar may worry people. Not everybody is an innovator. We therefore need to find ways in which we can make a new idea more acceptable so that people understand it and are more likely to buy it.

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