A Taboo in Most Industries: Using Gut Feelings to Take Business Decisions
Do we, and should we, use our gut feelings to take important decisions at our workplace? Research by Gerd Gigerenzer seems to indicate that we do–much more than what we publicly admit–and that in many cases it’s the right thing to do.
Heads of departments, members of executive boards and top managers from technology service providers and from a large car manufacturer were found to rely on their gut to take decisions in more than 50% of cases. However, they never admit to this in public because a rational and calculated explanation is expected by customers, colleagues and shareholders.
As a consequence of this demand to take fact-based decisions, energy is often wasted in trying to rationally justify actions or decisions that were truly based on intuition. A common example in industry is to hire a group of expensive consultants to justify what a manager is going to do anyway. Or, even worse, failing to take a courageous decision because of a manager’s inability to explain it rationally.
The notion of trusting one’s gut feelings can seem to clash with the insights given by Daniel Kahnemann and many others, which show the large number of downsides which were once useful in evolutionary terms but play against us today. Their studies proved how biased we can be at unconscious levels and how giving it a second thought and being rational can help us take better decisions.
However, both Gigerenzer and Kahnemann agree on the fact that decisions based on gut feelings are often more accurate in the case of experienced managers and trained experts in a given topic.
But isn’t it better to find a more rational explanation by having as much information as possible?
Not really. In many cases less is more, and additional information can lead managers to take the wrong decisions. This happens when there are many variables and the uncertainty is high, so it’s utopic to precisely calculate the expected utility of every alternative from estimating the impact, probability and risks of each. And isn’t it the case that managers have to take a majority of their decisions in uncertain, complex environments?
In practice #
Even if we believe gut feelings should be considered, our tendency to want a rational explanation for our decisions suppresses this behavior. What can we do to incentivize it instead?
We can start by considering the following three factors.
Autonomy of managers and experts: If decisions are taken in a group, intuition won’t drive decisions as one can’t just say they have a gut feeling to convince the group. Managers will need autonomy and a performance review based on their results, not on their decision process, which takes us to the second point to consider.
Result orientation: Performance reviews that are based on the final results of a manager’s decisions, not on the reasons that made them take the path they followed, will encourage them to trust their intuition more.
Avoiding a culture or zero-tolerance for errors: If there is no room to make mistakes, managers will always take decisions that they can back up with data and a rational reasoning, even if it doesn’t feel right. This also leads to defensive decision-making—essentially protecting oneself at the cost of the company. As the saying goes: nobody ever got fired for buying IBM. This can be particularly difficult in industries that cannot tolerate the smallest of errors.
In conclusion, there are cognitive biases that affect our decision-making, which can be partly controlled by thinking twice before we decide. However, additional information and the intention of rationalizing all our decisions can also mislead us. It seems like, after all, we should trust our gut feelings and heuristics when faced with complexity and uncertainty. But then again, you probably already do so, and that’s ok.