“How your firm can think smarter” according to Daniel Kahneman

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Daniel Kahneman, widely regarded as the father of Behavioural Economics, recently spoke at a conference about his troubling realization of the amount of poor thinking in organisations that traditional economic theory views as ‘rational’. If businesses should behave in the optimal manner for profit and growth, why is it that they so often do not make accurate choices to ensure that? There is a gap between the quality of the thought going into decisions and the importance of those decisions that Kahneman explains as the result of overconfidence, limited attention and other cognitive biases and psychological phenomena.

In large firms important decisions are often made by individuals who are subject to such biases as well as what Kahneman refers to as “noise”. His solution? Algorithms. While group decisions may be influenced by conformity pressures, an algorithm - which sets out steps that an individual must follow in making a decision - allows for a global decision to be made only once the person has systematically gone through all of the individual ‘parts’ and can thus make holistically informed decisions.

Kahneman’s article also discusses his opinion on Artificial Intelligence (AI) systems and their role in smart business. Developing intuition that allows for smart decision-making depends on your ability to access and process information, which, according to Kahneman, an AI would be much better at than a human. This creates a rather uncertain future for human functioning in business environments. Read the article below to find out why.

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