- Our brains have a system one that thinks very fast, automatically, and is always on and this is where we spend most of our time.
- System two of the brain is very slow thinking and it’s how we are able to do integrative thinking that helps us make decisions.
- While both systems are necessary, system two is where you want to operate when it comes to your money and making good decisions about your financial future.
Ever try this trick with a kid? Tell them to say “milk” fast, five times. Milk, milk, milk, milk, milk. Then immediately ask them, “what do cows drink?” Most likely, they will answer “milk” and you’ll all get a good laugh out of that.
It’s ok for a kid to make that kind of small, fast mistake, but if we look at an adult making a fast decision, especially around money, it can be disastrous.
In 2002, Dr. Daniel Kahneman received a Nobel Prize in economics, and in 2011, he wrote a book called Thinking Fast and Slow. In the book, he explains the dual role in our brain, a process that he calls system one and system two.
System one is very fast, always on, automatic, and it’s where we spend most our time. It’s where you are intuitive, metaphorical, associative, and so forth. We needed it long ago on the savannahs to run away from predators to save our lives. With system one, you can make very quick decisions that can be irrational, as well as be subject to lots of biases such as confirmation or hindsight bias. These tend to not put you in a great position.
System two on the other hand, is very slow thinking. It takes a lot of our mental energy and resources, so we don’t do it often. It becomes critical in areas where you must do a lot of integrative thinking to ensure you make a good decision.
Let’s look at these three examples involving money where slow thinking is important:
It’s a very slow, methodical, deliberative, and attentive process to think through all of these aspects when we make decisions. We know intuitively that we have to use system two so we make good decisions and don’t say, “cows drink milk”.
You may have to go out and find a subject matter expert or someone to consult with to help you get through that process because technically, you may not have the capabilities to do so. Whatever it is, make sure you go through that slow process and come up with great decisions that will help you grow your money successfully in to the future.
Until next time, enjoy!