The “Mystery” of Intuitive Decision Making

by

A High Stakes Hunch

I had just got the news: the bank I worked for was going to sell the business I was supporting. This was going to be the seventh transition of my 26-year banking career. Should I try to find a new job in the industry or start my own business? Somehow, I just knew the answer right away: I wanted to start a business that could potentially have a huge impact. It was only later that I could come up with reasons (or rationalizations) for taking such a leap.

Was this intuitive decision rational? When is it best to use your gut feelings to decide? How should you use your intuition to best effect? What is intuition anyway? 18 months later, I can tell you my decision was high-quality because it allowed me to move quickly, without wasting lots of time on unhelpful analysis, so I could get to work on designing the next stage of my career and life.

Intuition Versus Deliberation

Intuition has been described as “unconscious intelligence.”[1] It’s a nonconscious feeling that quickly, automatically, and, without effort, motivates you to act. It doesn’t lend itself to logical argument, reasons, or even language.[2] It’s holistic, concrete, and was formed deep in our evolutionary history.[3][4] It is often about recognizing a pattern from experience and knowing instinctively which rule of thumb to apply.[5] In my case, based on my experience making past career decisions, I used the take-the-best heuristic (rule of thumb) and chose to start a social enterprise because it could have the greatest potential impact compared to my other options.

[Intuition is] the mystery of knowing without knowing

Deliberation is the opposite of intuition. It’s slow, hard work, more or less divorced from emotion, and can be defined by careful analysis and logical arguments. It’s something humans have evolved more recently. In my case, I used analysis only after the fact to confirm (or rationalize) my decision to myself, my family, and friends. Immediate deliberation would have only slowed me down, confused me with irrelevant information, and increased the risk that I’d convince myself to make the wrong decision.[7][8]

When Can You Rely on Your Intuition?

It’s best to use intuition to make decisions when you have the right kind of experience and context for a given decision. Have you had enough practice to learn which decision rules usually work and which don’t? Did you get consistently complete, accurate, and timely feedback, which you were able to appreciate without bias? [9] Over my longish career, I’ve made a lot of career decisions, the consequences of which —positive and negative—were clear, and which I tried to accept non-judgmentally.

Intuition is better than deliberation when the situation is fundamentally uncertain. We’re talking about “Knightian uncertainty” where some of the alternatives, probabilities, and outcomes are unknown, making algorithms and analyses worthless. This describes many, if not most, personal and business decisions.

Consider the investment allocation decision. The future is almost completely unknown and profoundly unknowable. But, we do have a lot of investment options. This decision is a good candidate for the equal-weights (or 1/N) rule: just spread your investment equally among the options. [10] It turns out this strategy performs at least as well, if not better, than more complex analyses in many investment contexts. [11] Finally, use intuition when it’s OK that the answers are approximate, and in domains that are more qualitative and holistic such as ethics, aesthetics, and social decisions. [12]

Using intuition is tricky for analytical people like me. First, you need to be aware of your feelings and the “vibes” of the situation. For a given choice, does it make you feel more comfortable, relaxed, engaged, safe? Or does it rather cause tension, revulsion, malaise, or pressure? [13]

Mindfulness Sharpens Your Intuitive Decision Making

The practice of mindfulness can help you use your intuition effectively. Mindfulness is, “The state of being openly attentive to, and aware of, what is taking place in the present,
internally and externally.” [14] It also means that you are observing non-judgmentally and with calm detachment, as if “from a balcony.”[14]

Mindfulness can help reduce the risk of cognitive biases causing mistakes. For example, being accepting of one’s own limitations can reduce the risk of overconfidence. Some research suggests mindfulness can also help offset present bias, stereotyping, and the sunk cost fallacy, while improving learning from experience. [14] Mindfulness can also address behavioral hurdles: For example, my yoga instructor uses her practice to “cool her emotions”, which helps her avoid procrastination and connect with her intuitions to make better decisions.

Give Deliberation a Vote Too

Speed is a key feature of intuition. But this doesn’t mean that deliberation should be ignored. On the contrary, if there’s time and it’s the kind of decision that can be fruitfully analyzed, then deliberation can be a good check on intuition. This is especially the case if you don’t have enough quality experience to rely on. Use deliberation to ensure that you’re being reasonably consistent, you’ve considered the downsides, and controlled for biases — for example, by seeking disconfirming evidence. [15] You can also use it after the fact to rationalize and get buy-in from stakeholders who just aren’t persuaded by your gut feelings.

In sum, while deliberation, analysis, and calculation can be useful for decisions where there is plenty of quality information, analytical tools, and time, it is not the sole measure
of quality decisions. Intuition is not only helpful but sometimes offers better decisions, precisely because it is fast, disregards some less relevant information and reflects the fundamental uncertainty surrounding many of our decisions. “The brain is a democracy,”[16] with different capacities contributing to our wellbeing and that of those we care about. For all our decisions, we ought to use all of our capacities to make them the best way we can.

Want to learn more about Decision Fish? Got personal finance questions? Want to get in line to try our app? Work at a company that does not yet offer financial wellness tools to employees? Please, let us know at decisionfish.com/engage!

Sources:
[1] Gigerenzer, Gerd. Risk Savvy: How to Make Good Decisions. London: Penguin, 2015. Print.
[2] N.a. “Gut Feelings | Philosophy Talk.” Philosophytalk.org. n.d. Web. 24 May 2017. <https://www.philosophytalk.org/blog/gut-feelings>
[3] Hogarth, Robin M., Deciding Analytically or Trusting your Intuition? The Advantages and Disadvantages of Analytic and Intuitive Thought (October 2002). UPF Economics and Business Working Paper No. 654. Available at SSRN: https://ssrn.com/abstract=394920 or http://dx.doi.org/10.2139/ssrn.394920
[4] Analytics Magazine. “Forum: Intuition-based decision-making: The other side of analytics – Analytics Magazine.” Analytics Magazine. 27 Feb. 2015. Web. 24 May 2017. <http://analytics-magazine.org/forum-intuition-based-decision-making-the-other-sideof-analytics/>
[5] Klein, Gary A. Sources of Power: How People Make Decisions. S.l.: MIT, 2017. Print.
[6] Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2015. Print.
[7] Based on ScienceDaily. “Trust your gut: Intuitive decision-making based on expertise may deliver better results than analytical approach.” ScienceDaily. 12 Dec. 2012. Web. 24 May 2017. <https://www.sciencedaily.com/releases/2012/12/121220144155.htm>
[8] Michael Blumfield. “When making decisions, intuition can be better than a rational, deliberate approach.” The Hub. 29 Dec. 2014. Web. 24 May 2017. <https://hub.jhu.edu/2014/12/29/decision-making-intuition/>
[9] Ibid.
[10] Gigerenzer, 2015.
[11] DeMiguel, Victor, Lorenzo Garlappi, and Raman Uppal. “Optimal Versus Naive
Diversification: How Inefficient Is the 1/N Portfolio Strategy?” By Victor DeMiguel, Lorenzo Garlappi, Raman Uppal :: SSRN. N.p., 13 Apr. 2009. Web. 24 May 2017.
[12] Hogarth, 2002
[13] Psychology Today. “Learn How to Intuitively Make Smart Decisions.” Psychology Today. n.d. Web. 24 May 2017. <http://www.psychologytoday.com/blog/emotionalfreedom/201304/learn-how-intuitively-make-smart-decisions>
[14] Karelaia, Natalia and Reb, Jochen, Improving Decision Making Through Mindfulness (May 30, 2014). Forthcoming in Mindfulness in Organizations, Reb, J., & Atkins, P. (Eds.), Cambridge University Press.; INSEAD Working Paper No. 2014/43/DSC. Available at SSRN: https://ssrn.com/abstract=2443808
[15] Mousavi, Shabnam and Gigerenzer, Gerd, Risk, Uncertainty, and Heuristics (March 19, 2014). Journal of Business Research, Vol. 67, No. 8, 2014.
[16] Tononi, Giulio. Phi: A Voyage from the Brain to the Soul. New York: Pantheon, 2012. Print.

Brett Whysel
About Brett Whysel:

After a 26-year career as an investment banker, Brett founded Decision Fish in 2016. Decision Fish’s mission is to empower people to make wise financial decisions. in the form of a low-cost, scalable financial wellness benefit for employers to offer employees. Brett also teaches Public Economics and Decision Making at the City College of New York and runs the Behavioral Economics-NYC meetup. He is a top ten authority on behavioral economics on Quora.com and writes about behavioral economics at www.decisionfish.com and www.twitter.com/decisionfish, respectively. Brett earned a BS in managerial economics/French from Carnegie Mellon University and an MA in philosophy from Columbia University.