Behavioural Economics - What is System 1 and System 2 Thinking

System 1 and System 2 Thinking comprise the Dual System Theory developed by Nobel Economist Daniel Kahneman. This study note looks at the difference and gives some examples.

System 1 Thinking

System 1 thinking, also known as automatic thinking or unconscious thought, is a type of mental processing that is fast, automatic, and unconscious. It is characterised by a lack of effort and control, and is often triggered by certain stimuli or cues in the environment.

System 1 thinking is typically associated with emotions, intuition, and gut feelings, and is thought to be responsible for many of the judgments and decisions that people make quickly and without much deliberation.

Examples of system 1 thinking might include:

• Responding to a loud noise by jumping or flinching
• Deciding to turn left or right at an intersection based on which route feels more familiar
• Making instantaneous decisions on what to buy in a shop
• Having a gut feeling that a person is untrustworthy, even if there is no logical reason for this feeling

System 1 thinking is generally fast and efficient, but it can also be prone to errors and biases. It is often contrasted with system 2 thinking, which is slower, more deliberative, and more logical.

System 2 Thinking

System 2 thinking, also known as controlled thinking or conscious thought, is a type of mental processing that is slower, more effortful, and more consciously controlled. It is characterised by a greater degree of effort and control, and is often triggered by the need to solve a problem or make a decision that requires more thought and deliberation.

System 2 thinking is typically associated with logic, analysis, and reasoning, and is thought to be responsible for many of the more complex and deliberate mental tasks that people engage in.

Examples of system 2 thinking might include:

• Writing an essay
• Doing a crossword puzzle
• Making a complex decision, such as deciding which car to buy or where to go on vacation

System 2 thinking is generally slower and more effortful than system 1 thinking, but it is also more accurate and less prone to errors and biases. It is often contrasted with system 1 thinking, which is faster, more automatic, and more emotionally driven.