How Can You Use Multiple Decision-Making Models to Manage Uncertainty and Risk in Business?
An exploration of decision-making models on LinkedIn's Top Voices in Critical Thinking
We become better decision-makers when we understand the differences between intuitive thinking, rational thinking, collaborative, and constraint-based decision-making. So, I was happy to pitch in when LinkedIn's "Top Voice" team asked me to contribute to exploring these critical thinking models.
The Q&A explores each system in isolation, which I think belies how they actually work. As Daniel Kahneman and Richard Thaler explained in their Nobel-Prize-winning work, our decision-making systems riff off each other like a jazz band. When they play together, we make beautiful decision-making music.
Check out my responses and others in the LinkedIn community in "How can you use multiple decision-making models to manage uncertainty and risk in business," below.
The rational model
Better decisions come from balancing our rational and intuitive brains. Nobel-prize-winning psychologist and economist Daniel Kahneman defined our rational minds as "System 2.” It’s in charge when we solve complicated problems, like complex math, playing a game of chess, or creating art.
System 1, by contrast, guides autonomic decision-making like typing, tying your shoelaces, bike riding, or simple math (“2+2=4”). We perform these tasks "without thinking."
To improve your decision-making capability, develop the skill of getting these two systems to work TOGETHER: slow down. Journal. Reflect. Take your time. This allows your intuition to augment your rational mind and make better, wise, creative decisions under pressure.
Read the LinkedIn community responses on rational decision-making here.
The bounded rationality model
CEOs make rational, bounded decisions all day, every day. Constraint-based theory is the science of solving problems in a methodical, decomposed, structured way and is especially useful for complex problems like those found in manufacturing.
The Theory of Constraints is the idea that complex systems consist of multiple linked activities, and the overall process is improved when key constraints are improved. Programmers "unit test" code to evaluate individual tasks in complex software. When each unit does its part, the system gets stronger.
To practice bounded, rational problem solving, break problems down into atomic pieces. Solve the most important one. Then, pick the next one.
Read the LinkedIn community comments about bounded rationality here.
The intuitive model
Ah, our beautiful, intuitive, creative, biased, unthinking mind! Otherwise known as "System 1," thanks to Nobel-prize-winning psychologist and economist Daniel Kahneman, our intuition is the source of creativity and guides "System 2," our rational mind.
"System 1" automates tasks like typing, tying your shoelaces, bike riding, or simple math (“2+2=4”). We perform these tasks "without thinking." It's also the source of bias, stereotypes, and overconfidence.
To improve your decision-making, externalize your intuition: journal, reflect, and write. Slow down. As Issac Asimov said, "Writing is thinking with your fingers." Help your rational "System 2" mind see your intuition, and you'll make more creative rational decisions under pressure.
Read the LinkedIn community comments about intuitive decision-making here.
The participative model
"The only way to spot your bias is to have others see it for you." Daniel Kahneman makes this observation in his best-selling book "Noise." He argues that collaborating is the best way to identify flaws in thinking, spot bias, and strengthen your logic.
It can also result in groupthink.
So, collaborate with others but keep your creativity flowing. Use constraints to prioritize, judge, and help your rational mind choose the most impactful route. Remember: these decision-making systems do not work in isolation; they improvise like a jazz band. Each builds, complements, and plays off the others. Together, they make beautiful decision-making music.
Read the LinkedIn community comments about intuitive decision-making here.
Here’s what else to consider
Read, listen, or watch these three things:
Thinking, Fast and Slow by Nobel-Prize-winning Daniel Kahneman. This best-selling book describes our intuitive System 1, rational System 2 and how they work together to guide decisions.
Tim Ferriss: How I Journal and Take Notes (YouTube). This short video will help you create a simple system to externalize your ideas and improve your thinking.
Atomic Habits: Tiny Changes, Remarkable Results. This best-selling book by James Clear describes the art and practice of constraint-based thinking, building atomic habits, and making them stick.
These will help you form better problem-solving habits, unlock your creativity, and make better decisions!