For the last couple of centuries, ever since the Enlightenment (and even well before that), we’ve been enamored with the idea of being ruled by reason and logic. We think we’re objective. We think that our brains can solve nearly anything, if one is just given the facts.
While it’s good for our egos, sadly it’s simply not true. Like anyone else, from King David to Elon Musk to the barber down the street, we are all swimming in a vast sea of our own personal biases and emotions.
We were reminded of this with the news of the death of Daniel Kahneman, 2001 Nobel Prize Laureate and pioneer of Behavioral Economics. Outside of academia (he taught at Princeton), Kahneman was best known for a huge bestseller he co-authored with Jason Zweig named “Thinking, Fast And Slow.”
The book’s main thesis is that people think in two fundamentally different ways: 1. Emotionally and sudden, and 2. Rationally, slowly with deliberation. Think certain decisions should not be made on the fly (say, buying a business), and certain decisions should not take forever to make (say, where do we fancy going to get a sandwich?). This coupled with our own baggage and biases doesn’t exactly help.
As his co-author put it, “Kahneman may well have had more influence on investing than anyone else who wasn’t a professional investor.” We’re not surprised. Finance may be all about numbers, but the motives driving the behaviors are just as complicated and emotion-led as just about anything.
What Kahneman said out loud were the things we intuitively knew about human behavior in organizations all along but were afraid to admit. That for all our swanning around, few of our day-to-day business decisions are actually logical.
In other words, we’re all making it up as we go along. This is both good and bad news. The good news is, our humanity is actually in charge, not some magical algorithm that will solve all of our problems for us. The bad news is, our humanity is actually in charge, not some magical algorithm that will solve all of our problems for us. Meaning, it’s on us to figure it out, one messy, emotion-drenched decision at a time.
God Bless Dr. Kahneman for making this so apparent over the decades, to so many fans like us.
