The collapse of global financial markets taught us, among many other things, about greed, the lack of systemic controls and the extent to which the human decision-making process can be hopelessly fallible. This in turn raised extensive debate about how to improve decision-making ability and whether we can rely on our intuition to guide us.
Surprisingly ‘going with your gut’ is an accepted means of making mission-critical decisions in business and people find it tantalising that something almost ‘magical’ can inform a better decision-making process. However, research suggests reliable intuition is more about learned skill and expertise, and that what you take to be trustworthy intuition is often nothing more than over-confidence based on lucky past guesses that happened to have paid off.
The Intuition of Experts
Nobel Laureate Daniel Kahneman and psychologist Gary Klein published a paper in the American Psychologist journal investigating the conditions required for people to make accurate intuitive judgements.*
They argue that skilled intuition – the type that’s most reliable – is based on recognition from prior experience. For example, a nurse will have a ‘gut feeling’ that a child is gravely ill, but even though this ‘intuition’ might feel automatic and involuntary, it is based on the nurse’s recognition of certain cues and her memory from past professional experiences. Such skilled intuition is found among experts who have enough experience of a regular repetitive situation, and have had the opportunity to learn from such experience.
Where Does This Leave Business?
But what about less predictable situations, such as those most often found in business? Many executives might argue that their expertise, experience and opportunity to learn in their specific environments mean that their intuition is reliable and can be trusted. But Kahneman and Klein sound an important warning note about over-confidence.
“Unfortunately, […]the correlation between the accuracy of [people’s]judgements and the confidence they experience is not consistently high,” they say. In many instances, leaders will take a lucky risk that happens to pay off.
Such experiences give them the impression that their gut feeling is always reliable, when in fact there is no basis for such a belief. To make matters worse, the business world lauds leaders who make quick decisions that pay off, so the lucky risk-taker receives external positive reinforcement that his intuition is reliable.
Then there’s the issue of not seeing critical aspects of a problem, something often related to over-confidence and, it must be said, arrogance. “An executive might have a very strong intuition that a given product has promise, without considering the probability that a rival is already ahead in developing the same product,” Kahneman points out.
How to Get it Right
So what’s to be done? “Subjective experience is not a reliable indicator of judgement accuracy,” say the researchers. You need to deliberately and consciously evaluate your intuition. Monitor the data and experience upon which it is based and be aware of the fact that there might be entire aspects of the problem to which you are simply blind.
Guard against bias, particularly a bias to discount people who challenge your decision or highlight its pitfalls. Kahneman and Klein suggest the use of two helpful tools: the pre-mortem and the check list.
The Pre-mortem
The pre-mortem helps to reduce over-confidence and improve decisions. It performs the same function as the post-mortem – investigating why something went wrong – only it does it preemptively instead of retrospectively.
Once you’ve described a proposed plan, get your project team to imagine that it has failed miserably. Each person should write down, in two minutes, a list of reasons why they think the plan failed, and then present these starting with you.
The idea is that the process will uncover some of the unforeseen factors to which you might have been blind. It also encourages a culture of questioning and challenging ideas. “Instead of showing people that you are smart because you can come up with a good plan, you show you’re smart by thinking of insightful reasons why this project might go south,” says Klein.
The Check List
While Kahneman and Klein admit that check lists are not appropriate in all decision-making situations, they can be useful under certain circumstances, such as at due diligence stage, to avoid over-confidence.
Questions should include:
- What is the quality of the information about which the decision is being made? Interrogate the numbers and where they come from.
- Have I excluded information because it doesn’t support my gut feeling?
- How independent is the information? Does it come from one source, or multiple sources?
- Is my opinion influencing what the rest of my team thinks about the decision?
- If there is group consensus on the decision, has it been achieved through discussion or independently by each individual? (Discussion-based consensus creates conformity and is known to reduce the accuracy of judgement).
