Sector News

When it’s OK to trust your gut on a big decision

October 23, 2019
Borderless Leadership

Some executives pride themselves on having a strong intuition, honed through years of experience, that guides their decisions. Others are ambivalent about relying on their intuition to make important choices, concerned that their gut reaction is inherently biased or emotional.

This latter group is no doubt responding to the oft-given advice that we should use formal data and analysis to “check” our intuitions. So who’s right? Should leaders make decisions based on their gut feel, or shouldn’t they?

My recent research suggests that gut feel can in fact be useful, especially in highly uncertain circumstances where further data gathering and analysis won’t sway you one way or another. In several studies I’ve conducted over the past eight years looking at high-stakes decisions, such as surgeons making life-or-death emergency room decisions, or early-stage investors deciding how to allocate millions of dollars in startup capital, I found that the role of gut feel is often to inspire a leader to make a call, particularly when the decision is risky. In the face of information overload, mounting risks and uncertainty, and intense pressures to make the right decisions, there is often debilitating evidence that delays our decision making. We put the choice off, rather than deciding. Trusting your gut allows leaders the freedom to move forward.

For example, over four different studies (which I wrote about in two papers here and here), I observed hundreds of angel investors and venture capitalists as they considered capital allocation decisions, tracking the extent to which they considered economic, financial, “hard” data, and the extent to which they relied on signals and subtle cues that were based on intuitive, “non-codified” information. Based on the objective and quantifiable information such as financial statements and market data, almost all of these entrepreneurial ventures would be considered risky investments that should be avoided. Yet, investors often entered into them, relying on their “gut feel” to do so.

I tracked 90 of the companies they were considering investing in over time and was able to see several years later whether the investors’ gut feel was predictive of which companies were most successful. What I learned from this study and others that I’ve conducted is that those who made more successful decisions based on their gut feel do the following:

  • Recognize that their gut feel is not a separate piece of information but it draws on both objective and subjective information that is already available.
  • Understand that gut feel is not quick, impulsive, and emotional — it’s actually something much more cultivated and nuanced and based on experience.
  • Commit to continually cultivating their gut feel, by paying attention to exemplars, prototypes, patterns, and models in their field and linking what they learn to future decisions.

Before deciding on whether to trust your gut feel, it’s important to do two things.

First, recognize the type of problem at hand. What kind of decision are you being faced with? What is the level of “unknowability”? Reserve your intuition for those decisions that go beyond routine, where calculations of probabilities and risks are not only unrealistic, they are infeasible. Take for example, the decision to divest a business. You will likely look at models and figures and predictions but there will be huge uncertainties and lots of factors will be unknowable. Or consider the decision to launch a new product. You’ll likely do research on the addressable market and competitor products but your analysis will not guarantee that people will buy the product. This is the kind of decision where after looking at the analysis, a leader might rely on gut feel to make the call, knowing that there will never be enough information to make a fully data-based decision.

If data and analysis are available and applicable, then rely on those. If you can calculate probability of the outcome with reasonable confidence, don’t use gut feel.

Second, clearly identify and be aware of the context in which you are making the decision. If you’re operating in an environment where successful mental models and schemas have already been developed and proven and can be replicated in a new context, focus on method and execution. If, on the other hand, you’re seeking to make an unusual, distinctive, “diamond in the rough” type of decision to separate you from others who are making a similar decision (think about trying to predict the next startup unicorn), gut feel can be helpful.

Once you’ve decided to rely on your intuition to make a high-risk, high-impact decision, don’t try to explain it or justify to others how you arrived at it. If you apply logic and data to gut feel, the more likely you are to put off a decision or make a worse one.

Remember there are some things you can’t quantify and sometimes you’re using your intuition to do something other than what the data told you to do. And when that’s the case, your gut feel can help you make a bold decision.

By Laura Huang

Source: HBR

comments closed

Related News

June 3, 2023

The Chief Transformation Officer: your navigator for the uncharted waters ahead

Borderless Leadership

Large-scale change efforts achieve 24% more of their planned value when a dedicated CTO oversees them, Bain data shows. There are five critical roles a CTO must play, often simultaneously: strategic architect, integrator, operator, coach, and controller. Many CTOs are in the position for the first time and often don’t have a predecessor to lean on, making external coaching or peer mentoring highly valuable.

May 27, 2023

More than half of employers want to embrace AI at work but only one fifth are currently doing so, study finds

Borderless Leadership

The research by Hays, which surveyed 8,853 professionals and employers, found that most were yet to use the technology, with less than one in five workers (15 per cent) using AI in their current role, and just over a fifth (21 per cent) of organisations. The study also found that currently only 27 per cent of organisations are upskilling staff to prepare for the use of AI.

May 21, 2023

How to be more creative, according to psychology

Borderless Leadership

We often view creativity as something we have to let ourselves express naturally rather than something that can be forced. But one study found that receiving an instruction to be creative can, perhaps counter to this assumption, actually boost our creativity.

How can we help you?

We're easy to reach