Intuition-Based Decisions

A new article featured on the Harvard Business Review website suggests that intuition is not about trusting your gut feeling. The article, written by Modesto A. Maidique, covers an interview with Micky Arison, Carnival CEO, about a research project on CEO decision making.

Over the course of 20 interviews with various leading CEO’s, often the same conclusion was met – most of the top dogs often trust their gut. Whether it was the best or worst decision the interviewee made, it was always based on ‘intuition’ or their ‘gut feeling’. So is this the best way to make decisions? It depends on who you ask.

Quants say we use intuition because of our cognitive limitations. It is a strategy of last resort, employed when we can’t use expected utility theory (optimal weighting and computing of all relevant factors). Professor Gerd Gigerenzer disagrees. He believes in certain circumstances, heuristics (implicit rules of thumb, the building blocks of intuition) can actually lead to better choices.

Another factor that plays a crucial role in decision making is not only intuition, but experience. How much experience you have in a field will effect the decisions you make in regards to it. Maybe when you have a direct knowledge base with the field in which you are making a decision, your ‘intuition’ pays off better than in fields where you are less informed.

More than knowledge, successful intuition requires deep introspection. The article notes that understanding the biases, emotions, and offsets of your decision-making compass can help to overrule just ordinary knowledge and lead to better decision-making outcomes.

The effectiveness of intuition, then, is relative. At its best, the key to effective, intuitive decisions is best conveyed in two wise sayings: “Know your business” and “Know yourself.” The sweet spot for business decisions is when both domain knowledge and self knowledge are high; when you have the knowledge to shrewdly interpret the facts and the wisdom to steer clear of the biases and destructive emotions that can hinder success.

To read more about how intuition effects decision making, and a few success and failure stories from leading CEO’s, click here for the full article.

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