IBA Update 26 May 03 Evolving your intuition

45% of corporate executives now rely more on instinct than on facts and figures in running their businesses, according to a survey conducted in May 2002 by executive search firm Christian & Timbers.

This increasing reliance on instinct is encouraged by a variety of recent articles and books. For example, Gary Klein’s book, Intuition at Work, published at the end of 2002, recommended that decision makers “trust their gut” and use analysis only as a support to their intuition.

Intuition represents “the subconscious integration of all the experiences, conditioning, and knowledge of a lifetime,” as consultant Bruce Henderson noted in 1977. Everyone has an intuition, although, in business, some people’s seem to be better than others.

Intuition is a vital and valuable faculty – it allows us to filter a great deal of material to get to core issues. It builds on and complements experience. This is its great value and, in times of rapid change, also its great flaw.

The problem is that intuition is often misguided, resulting in costly mistakes. As Eric Bonabeau noted in this May’s edition of the Harvard Business Review:

“For every example of a great gut decision, there’s an equal and opposite example of a terrible one.”

In reviewing experiments on intuitive decisionmaking, Janet Metcalfe, a psychologist from Columbia University, offered the following summary:

"People think they will be able to solve problems when they won't; they are highly confident that they are on the verge of producing the correct answer when they are, in fact, about to produce a mistake; … they think they have solved problems when they haven't; they think they produced the correct answer when they didn't, and furthermore they say they knew it all along; … they think they have understood, though demonstrably they are still in the dark."

Intuition fails when it leads to a conclusion that is erroneous. When intuition fails, it puts up quite a fight. As a demonstration, try out the “Monty Hall Problem”. This is a simple analytic exercise that yields a solution that is counter-intuitive to most people.

As I’ve presented this exercise to numerous groups, I find that the more senior the audience, the more reluctant they are to embrace the solution. Many senior executives argue strenuously that they are right and the accepted solution is wrong. These executives have relied so successfully on their intuition for so long that given a choice between the correct answer and their intuition, they will choose their intuition.

Imagine the problems this poses in situations where your intuition no longer is a reliable predictor of the best course of action. Because it’s so ingrained in your approach, chances are these intuitive decisions will leave you in a worse position, often without any recognition on your part that you’ve made a mistake.

Because intuition is dynamic and built on previous experiences, it can be tuned and recalibrated to yield improved performance. But flexing your intuition this way involves conscious changes in approach; otherwise you won’t be getting any new information. Here are two kinds of intuition-flexing exercises you might try when approaching a business decision:

Test intuition against analysis. Increases in computing power make the development of very sophisticated analytics relatively inexpensive. This allows your intuition to be compared to the outcomes predicted by analysis. Eric Bonabeau’s company, Icosystem, builds agent-based models which can, for example, develop optimal factory schedules and product pricing structures. In general, analytics can help in determining the best approaches for managing complex systems.

Diversify. Bringing a range of experiences and perspectives to bear on a problem results in demonstrably better solutions. As an example, consider investment decisions. Brooke Harrington, a Professor of Sociology at Brown University, studied performance of investment clubs in the United States in the late 1990s. She found that clubs that included members of both sexes performed significantly better than those that were all-men or all-women.

Will Rogers captured the limits of intuition more than 50 years ago when he noted:

“It’s not what we don’t know that gets us in trouble. It’s what we know that just ain’t so.”

Because of rapid changes in many businesses, more and more of what we know turns out to be wrong, or at least subject to revision. Fortunately, we have tools and approaches which can help us evolve our intuition to better fit our environment.

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For additional material:

Eric Bonabeau’s article in May’s Harvard Business Review is called: “Don’t Trust Your Gut.” Here’s a link to a place where you can purchase the article: http://harvardbusinessonline.hbsp.harvard.edu/b01/en/common/item_detail.jhtml;jsessionid=HGFY5LZ0EPQIYCTEQENSELQ?id=R0305J

Bonabeau is the chief scientist at Icosystem. Here’s a link to its website:

http://www.icosystem.com/

Try out the Monty Hall Problem. This link: http://www.io.com/~kmellis/monty.html, gives an explanation of the problem and provides the solution as well.

Brooke Harrington’s paper on investment clubs is summarized in the New York Times: http://query.nytimes.com/gst/abstract.html?res=F20915FD385E0C768CDDA00894D1494D81