ECONOMICS

Detailed explanation-1: -Kahneman’s model divides the mind’s processes into two distinct systems: System 1 “is the brain’s fast, automatic, intuitive approach”[2].

Detailed explanation-2: -Dual process theory says that humans have two systems for thinking. System 1 is unconscious, quick, makes use of shortcuts, is a bit sloppy but is relied upon most of the time. System 2 is intentional, calculated and often more accurate, but it takes effort and is slow.

Detailed explanation-3: -The first system, System 1, is rapid, automatic, almost completely unconscious, and requires minimal cognitive effort (your “gut feeling”). System 2, by comparison, is time and resource intensive, deliberate, requires significant cognitive effort, and is associated with hypothesis creation and testing.

Detailed explanation-4: -System 1 processes are responsible for cognitive biases; System 2 processes are responsible for normatively correct responding. Both System 1 and System 2 processing can lead to normative answers and both can involve cognitive biases. System 1 processing is contextualised while System 2 processing is abstract.

Detailed explanation-5: -An example of System 1 thinking is detecting that one object is more distant than another, while an example of System 2 thinking is parking in a narrow space. Using the two system view as the foundation, Kahneman discusses human judgment and decision-making with all of its biases and heuristics.