The Denial of Intuition

"Intuition is nothing more and nothing less than recognition." — Daniel Kahneman

Have you ever had a hunch that turned out to be true? Having a gut feeling is annoying, because people don’t trust you. Everyone expects a cause, an exhaustive analysis even. But sometimes you just can’t put into words what your brain wants to tell you. Daniel Kahneman called this system 1. It’s fast and spontaneous. It’s what makes you remove your hand from a burning stove. You don’t stop and carry out a cost-benefit analysis. You just do it, because you probably remember how painful it was the first time you did a similar thing.

Photo by Diego PH

Trust your gut if you’re experienced

A gut feeling is a judgement that comes fast to mind, is strong enough to trigger action, and whose underlying reasons we don’t know. Having a hunch means you know what you should do without being able to explain why.

Gerd Gigerenzer, a German risk researcher, was giving a talk on gut feelings and business at a large bank. When he finished, the host, a senior executive stood up and said the following.

I remember when we, the five members of our bank’s board, were immersed in a passionate discussion. Should we go ahead with the planned merger with a global credit group, or better not? It was early in the morning when one of us warned us that he had a bad gut feeling. We asked him to explain what’s wrong. He couldn’t really say, but eventually came up with a few reasons. We destroyed every one, went for the merger, and sailed into disaster.

It’s no use to ask someone to justify their gut feelings. If they’re honest, they will say “I don’t know”. And if they’re pressured into giving a reason, they’ll make something up. We shouldn’t ask why, but who this person is. If they’re experts in their field, don’t ask more questions — trust them, even if they can’t justify it at first. This is something I’ve struggled with all my life. My dad is suspicious of some people, but he can’t really explain why. This line of no-reasoning used to drive me nuts. I wanted to know why and I didn’t have an answer. After some time, these people showed their true colours and were, in fact, not deserving of my trust.

One reason is all it takes

When we have to make a decision, we think the best course of action is gathering as much information as possible about all the options available. Once we manage to do this — if we ever do — we unconsciously convert all the alternatives into a common, abstract currency called utility. Staying at this job will make you happier than changing jobs and moving to the other side of the country where you don’t know anyone? Nobody knows, but you can’t compare these two options so easily.

There’s a wealth of factors at play — more than we can possibly fathom. The pay, job satisfaction, and social life, are the obvious ones, but there are many more to consider in your calculation. If you ever take the time to think through all these factors, what weight should you assign to each of them? How much more utility does a high pay yield than a high job satisfaction? I don’t know about you, but I would have a hard time answering to all these questions. The decision becomes way more difficult than it really is. Instead, you can just take into account the most important factor for you. This is known as the take-the-best heuristic.

Most people make decisions taking just one reason into account, the most important one for them. What do they do with the rest? They ignore them. A 2013 study found that airport customs officers select passengers to inspect by choosing the best of several cues, such as airport of origin, nationality, or amount of luggage. This is how intuition works most of the time, you just focus on one thing and ignore the rest. For example, I never answer to phone calls unless I know the number. Why? My experience tells me these calls are either scammers, or companies trying to sell me stuff I don’t want. Applied to stock picking, this could mean focusing on one metric alone. For example, avoiding stocks with high P/E ratios like the plague.

Stereotypes as proxies

Applied to social judgement, the take-the-best heuristic and our intuition give birth to dreaded stereotypes. Some years ago I thought stereotypes were an indicator of poor judgement and low intelligence. But I was wrong. This deserves a bell-curve meme.

I may be venturing into controversial land here, but I don’t mind. There’s only one thing worse than people saying negative things about a writer, and that is people not saying anything at all. If you’re easily offended, don’t read on.

As much as it may be politically incorrect these days, If a stereotype has stood the test of time for decades and even centuries, chances are it is true to some extent. This is a classic example of the Lindy Effect. Societies simply don’t store in their public consciousness ideas that don’t make sense. They are discarded through an intellectual selection process, akin to natural selection. Sometimes stereotypes are wrong, but they generally come handy when making quick decisions.

Stereotypes are a bone of contention because of the minority rule. Have you ever been in a group of people where one person didn’t speak the preferred language of the other members of the group? Chances are you switched to a language that person understood, even if the majority of the group didn’t feel as comfortable speaking it. This phenomenon extends way beyond this innocuous example.

Stereotypes aren’t 100% accurate and some people don’t fit the description. These exceptions are the loudest, most offended ones. They tend to be the most intolerant too. The ones portrayed in the media, the ones who bend and mould public opinion until everyone thinks they’re a majority. Or, in Taleb’s words:

It suffices for an intransigent minority — a certain type of intransigent minorities — to reach a minutely small level, say three or four percent of the total population, for the entire population to have to submit to their preferences. Further, an optical illusion comes with the dominance of the minority: a naive observer would be under the impression that the choices and preferences are those of the majority.

— Nassim Nicholas Taleb, Skin in the Game

Conclusion

All in all, embracing the power of gut feelings and heuristics in decision-making offers a valuable perspective. While stereotypes may be controversial, acknowledging their utility underscores the importance of intuition. Striking a balance between instinct and analysis can be key in navigating the complexities of decision-making. We should always remember that, at times, a single well-founded hunch might trump exhaustive reasoning, especially if we’re experienced in the matter at hand.

---

And you? Do you trust your gut?

Alejandro López — The Psychology of Wealth