“Bounded Rationality” and “Dual Process Theory”: two pillars of Behavioral Economics
- Silvia Cottone
- Sep 30, 2022
- 5 min read
Do you know how your users make decisions? The theory of “Bounded Rationality” and the “Dual System of Cognition” can give you new insights when designing your product strategies. What are they about and how can you take advantage of them? In this article, I tell you my first personal approaches to the theories. Read on to find out! 😉
Milad Fakurian on Unsplash
It happens a lot of times that we think that we can do several things at the same time. Especially in our jobs, we tend to be masters of multitasking. Do you remember your last meeting in which you thought: "Well, I can answer this email while I listen to the presentation...", and, when you finish writing the email, you realize that you don't remember anything about the presentation you should have heard 😧
Something similar happened to me when I was 17. I´ll tell you the story…
When I was in school, I really liked math. One of my friends had the habit of talking to me when I was giving my full attention to an exercise. I believed that I could easily do my homework and listen to her at the same time, but I realized that this was not the case when she got angry at me, as I didn't answer her question (and I hadn't even listened to her).
This anecdote left me thinking: Why do I stop paying attention to the stimuli around me when I focus too much on a task? Is there a theory that can explain this?
There is an explanation, and it came to me a few years later when I discovered Behavioral Economics. Specifically, the concept of Bounded Rationality by Herbert Simon's (1955).
Let's start by explaining who he is and why this principle is important 💪
Herbert Simon was a mathematical social scientist and the forerunner of what we now know as Behavioral Economics. He believed that social sciences should have the same rigor as "hard core" sciences such as mathematics or biology (Cajal Flores, Alberto, 2019). This innovative idea led him to investigate more about economic models and in 1947 he published his book "Administrative Behavior". In the book, he exposes his theory of decision making and explains that classical economic theory was far from reality in explaining human behavior.
This theory talks about the “homo economicus”: a being that makes rational decisions and always seeks to maximize his utility.
However, Simon discovered in his research that on a day-to-day basis, humans have limited capacity, and so when we make decisions we are limited by:
the ability to analyze the information.
the information available to us.
the time available to make the decision.
This is the basis of the concept of Bounded Rationality, one of the pillars of Behavioral Economics.
This means that humans have limited cognitive capacity, information and time. It also explains why we sometimes use mental shortcuts to make decisions that are “good enough” instead of making the most out of every opportunity.
Thanks to Herbert Simon, I understood why I couldn't focus on two things at the same time: my math problem and the conversation with my friend. My attention is a limited resource and I was directing it to the activity that required the most effort and cognitive ability.
If, for example, my friend had talked to me while calculating 2 x 2, I would have been able to continue the conversation since that calculation does not require all of my attention and mental capacity.
🧐 Here another doubt arose. Why is it easy to focus on two things at the same time if they are simple tasks (calculate 2 x 2) or we are used to doing them, but not when they are more complex (calculate 2 x 6 - (32 + 1) (22 x 32)? + 153 : 53 - (32)2 : 33)?
Another pillar of Behavioral Economics is what is known as the “Dual system of cognition”, explained by D. Kahneman in his book “Thinking, fast and slow” (2011). According to this theory, our brain is made up of two systems:
System 1 | System 2 |
It is immediate, autonomous, impulsive, based on associations, makes decisions based on experiences, does not require "working memory". This is the system we use when relying on "gut feeling". | It is methodical, slow, controlled, conscious, abstract, analytical, has limited capacity, requires a "working memory". This is where we find the motivation to achieve the goals we set for ourselves. |
Depending on how we process information stimuli, one or another system is activated to analyze the situation and finally make a decision. For example, imagine that you are learning to drive a car. In the first few weeks you will have to put in a lot of effort to learn everything you need to know and practice time to master how to operate the handlebars and shifter, so your system 2 will be active. However, once you've learned it, your system 1 will be activated every time you drive because the actions become automatic, and you will be able to do even more things while driving.
Now that you know the theories, how can you apply them to your projects?
By considering behavioral insights, we can apply them in projects to understand users in depth. Let's look at an example:
Understand users in depth
When we carry out user research (UX Research), it is important to take into account the pillar of “Bounded Rationality” and the “Dual System of Cognition”.
We must consider the user's interaction with the product and the environment where the product is located to understand if users have limitations in cognitive capacity, information and time available at decision points. In addition, we should understand at what moments in the interaction with the product the users make decisions more automatically (system 1) or deliberatively (system 2).
This is relevant because we can identify psychological barriers that influence user behaviors, which enriches the popular Human-Centered Design empathy map canvas, where what users say, think, do and feel is determined.
Applying Behavioral Economics considering these pillars takes UX Research to a deeper level of research and understanding of the user to design solutions that can positively influence their decisions and behaviors.
Behavioral Tips
Understand how your client makes decisions by applying Behavioral Economics.
In your investigation, consider the 3 factors of Bounded Rationality: the ability to analyze, the information available and the time to make the decision.
Determines whether users make decisions with system 1 or system 2.
If users make decisions by system 1, consider using heuristics in your solution proposals.
If users make decisions by system 2, you must do an in-depth investigation to know the motivations, attitudes and needs.
Understand the environment in which the user interacts, this will help you understand the stimuli they receive and thus be able to design your product strategy.
If you still have questions about the theories of Bounded Rationality and Dual System of Cognition or how to apply them to your projects, do not hesitate to write to silviacottonebehavioralscience@gmail.com.
Silvia Cottone
Behavioral Science Consultant
& Worldwide Keynote Speaker
The content of the article was created with Daniela Espitia, Behavioral Designer at BeWay.
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