Reference no: EM133525887

As we have read, Kahneman differentiates between two systems of thought in our brains: System and System 2. Importantly, System 1 isn't inherently "bad" and System 2 "good". They're simply two different ways our brain processes information, and each has its advantages and drawbacks. However, System 1 can sometimes lead us astray, particularly when it comes to complex decisions that require careful consideration and analysis.

In the current assignment I would like for you to consider System 1 and 2 in light of overconfidence, particularly involving experts. Overconfidence is a cognitive bias where an individual's subjective confidence in their judgments is greater than the objective accuracy of those judgments. In other words, we tend to believe we're right more often than we actually are. Kahneman argues that this overconfidence can even affect experts when they rely heavily on their intuitive System 1 thinking. Experts, use of System 1 can be beneficial and speed up the decision-making process, but it can also lead to overconfidence. That's because System 1 is prone to biases and can be influenced by irrelevant factors, leading experts to have undue confidence in their judgments.

For example, consider stockbrokers, these individuals possess deep knowledge of market trends, company performance, and financial models. They rely on their expert intuition (System 1 thinking) to make quick judgments, such as predicting which stocks will rise or fall. Imagine a seasoned stockbroker, John. Over the years, John has built a reputation as a reliable expert. His predictions about the stock market have been right several times, and he's confident in his abilities. When presented with information about a new company's stock, John quickly absorbs the data and intuitively makes a judgment about the stock's potential. He's confident that the stock will do well based on his experience and intuition.

This is an example of System 1 thinking and overconfidence in action. John is applying his expert intuition, and his high confidence in his prediction stems from his past successes and deep knowledge. However, John might have overlooked critical information about the company's debt or a pending lawsuit that could negatively affect the stock's performance. Despite having the same information available, another analyst using more of a System 2 approach might deliberate more, perform a thorough analysis, and conclude that the stock is too risky. In this scenario, even though John is an expert, his overconfidence-driven by his heavy reliance on his intuitive System 1 thinking-could lead him to make an erroneous judgment about the stock's potential.

Objective: For this assignment please reflect on an instance in your life, or in the life of someone you know, where expert decision-making was involved. Consider the concepts of System 1 and System 2 thinking, overconfidence, and expert intuition.

Briefly summarize the scenario, identify the individual who was acting as the expert (don't use real names). What is their area of expertise, and why do they qualify as an expert in this area?

Describe the decision that was made.

Reflect on the role of System 1 and System 2 thinking in the decision-making process. Do you believe the expert relied on intuition, analysis, or a combination of both?

Examine the role of overconfidence in the decision-making process. Did the expert exhibit signs of overconfidence?

Discuss the consequences of the decision. Was the decision correct or beneficial?

Conclude by considering how System 2 thinking could have influenced the decision. How might a more balanced use of System 1 and System 2 have altered the decision-making process and its outcome?

Remember, this is not an exercise in judgment or blame. The goal is to examine a real-life situation through the lens of System 1 and 2 and the potential pitfalls of overconfidence.