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Behavioral Economics is an emerging branch of economics that interweaves psychology and economics. One of the leading behavioral economists in the 21st century was Daniel Kahneman, who won the Nobel Prize in Economic Sciences in 2002 for his pioneering work in behavioral economics.

In October 2011, Kahneman published his first book, Thinking, Fast and Slow. It is a comprehensive exploration of decision-making, the human mind, and its two systems of thinking: System 1, which is fast and intuitive, and System 2, which is slow and critical. The book incorporates Kahneman’s and Amos Tversky’s psychological research on human behavior during decision-making. 

Kahneman and Tversky are referred to as the “founding fathers of behavioral economics” because they spearheaded research in the field. The two have now both passed away, in 2024 and 1996, respectively. In light of Kahneman’s recent death, and since his book is why I discovered my passion for behavioral economics, I decided to (briefly) re-read Thinking, Fast and Slow. 

Below is “Thinking, Fast and Slow” Explained.

The Two Systems

System 1

System 1 is our fast, automatic,  subconscious reaction to decision-making and the world. Unlike System 2, System 1 is constantly working and cannot be shut off. This System lacks criticalness and is fueled by feelings, memory, and intuition. 

However, System 1 has many great aspects. First, it is efficient and enables us to make decisions quickly. Second, it is deeply intuitive, which, if tuned correctly, can allow us to make more practical and aligned decisions. Lastly, System 1 is highly adaptive, so we can make decisions and judgments quickly as the environment around us changes.

Examples of System 1:

• What’s the capital of Spain?
• 1 + 1 = ?
• Make a mean face
• Detect a happy tone of voice
• Determine the color of the sky
• Stereotypes and biases

Unfortunately, although System 1 is our initial response to things and the world around us, it also has defects. Factors like cognitive biases, past experiences, and heuristics can alter our System 1 response for the worse. 

For instance, System 1 is victim to heuristics, which are mental shortcuts our brain takes during decision-making. Although heuristics are beneficial for quick decision-making, they are also prone to error. 

A common heuristic that our System 1 defaults to is the availability heuristic. This heuristic involves assessing the probability of an event based on how easily examples come to mind.

To illustrate, if you read about several car crashes in the news, you irrationally believe that the likelihood of you experiencing a car crash is greater than it actually is. This occurs because the information is more readily available in your mind and easier to call upon. 

Another factor that may affect System 1 is cognitive biases. Cognitive biases are skewed interpretations of information based on beliefs and past experiences. An example of a cognitive bias is loss aversion, a term coined by Kahneman and Tversky.

Loss aversion states that the pain of loss is greater than the joy of gain, even if they are of equal value. In other words, losing $100 is more painful than the joy of winning $100.

The more emotionally charged the experience, the more it becomes etched in our memory, which can lead to errors in System 1 thinking.

System 2

On the other half of the thinking equation is System 2—our slow, critical, and conscious system. Unlike System 1, System 2 is not automatic and requires effort. System 2 only comes into play when System 1 faces a decision, question, or scenario it cannot answer. 

System 2 has many great aspects. The first is that it’s more accurate than System 1. Although System 2 is slower than System 1, this allows System 2 to solve complex problems and decisions more accurately. Second, System 2 can help us learn and grow. Since this System allows us to think more critically, we can process new information and challenge our current beliefs, which can help us become not only better decision-makers but better people, too.

Examples of System 2 include:

• 2 × (4 + 5) / 8 = ?
• Writing a blog post or essay
• Doing a crossword puzzle
• Playing chess
• Searching for your friend in a busy park

However, like System 1, System 2 also has some faults. Unlike System 1, which is fast, System 2 demands much time and effort. Depending on the situation at hand, System 2 may not be quick enough to make a decision. Additionally, System 2 can also be prone to biases, especially if your environment is stagnant.

A common bias that System 2 may encounter is confirmation bias, which is the tendency to seek, interpret, and justify information that is aligned with your current beliefs. Since you’re not being challenged with new information, this can skew your perception of the world and the decisions you choose to make.

How They Work Together

Both systems rely on each other to function, like a feedback loop.

The goal of the two systems is to minimize effort and optimize efficiency. Since system 1 is our initial response, it draws on information already in our memory to respond to current situations or questions. If a problem or question is too complex for System 1, System 2 steps in.

Additionally, like a feedback loop, the two systems continuously feed each other information. As Kahneman puts it, “System 1 generates impressions, feelings, and inclinations. When endorsed by System 2, these become beliefs, attitudes, and intentions.”

As System 1 unconsciously encounters the world, it feeds information into System 2. If System 2 agrees, it becomes a belief or attitude that System 2 reciprocates to System 1. 

Reprogramming the Systems

Unfortunately, as stated earlier, both Systems are prone to errors like stereotypes and biases. Although System 1 cannot change independently, System 2 can reprogram System 1.

The best way to begin reprogramming your System 1 is to slow down and reflect on your initial behaviors, feelings, impressions, and beliefs. Instead of naturally following your initial response, channel your System 2 to stop and question it.

Other ways to reprogram your Systems are to learn more about the world, meet new people, talk with people you wouldn’t normally speak to, change your environment, and be conscious of the information you consume. 

When you change who you interact with, what you see, and what you consume, you’re inviting new experiences into your life. These new experiences can make you more understanding and knowledgeable, which will change the automation of your System 1.

Conclusion

To navigate our big, wide world, we need both System 1 and 2. It’s impossible to have one without the other, and one isn’t necessarily better than the other. We’ll never be able to eliminate System 1’s errors, but by employing System 2 through learning, exposure, and repetition, we can adjust System 1, making our decision-making easier, quicker, and more intelligent.