James Guszcza, John Lucker

Our intuitions can lead us badly astray in a way that is as surprising as it is straightforward. Kahneman identifies two types of mental processes. “Type 1” mental processes are fairly automatic, effortless and place a premium on “associative coherence.” In contrast, “Type 2” mental processes are controlled, effortful and place a premium on logical coherence. Although we fancy ourselves primarily Type 2 creatures, many of our mental operations are Type 1 in nature. And—here’s the rub—Type 1 mental processes are very poor at statistical reasoning. This is a major—and, in business, too often neglected—reason why analytical methods are taking root in broad swaths of business, government and medicine. Models can serve as correctives for the bounded rationality and biased cognition of human decision-makers.

Ironically, the dominance of Type 1 thinking can also lead to the organizational resistance to the very analytics initiatives that can help organizations become more “Type 2” in nature. A major culprit is the so-called “overconfidence bias.” So far are we from being naturally statistical thinkers and rational decision-makers that Kahneman characterizes the mind as a “machine for jumping to conclusions.” He comments that “neither the quantity nor the quality of evidence counts for much in subjective confidence. The confidence that individuals have in their beliefs depends mostly on the quality of the story that they can tell about what they see, even if they see little.” This is why human experts’ confidence in their own judgments systematically exceeds those judgments’ accuracy. Kahneman calls this phenomenon “the illusion of validity.”