Gut Decisions – Trust or Bust?

The gut decision divides decision makers everywhere. Some decision makers swear that their gut can do them no wrong and that pouring over data sets and applying decision models is busy work. Others demand a more rigorous approach to decision making and dismiss gut decisions as a viable strategy altogether.

Who’s right?

Well, it depends. Sometimes, making a quick decision based on your gut is the best approach. Other times, you put yourself at risk by failing to collect and analyze relevant data before making a final decision. So, let’s take a closer look at when you should and shouldn’t trust your gut decision.

Gut Decisions – Trust

Familiarity with the problem at hand

If the current issue needing a decision is identical or very similar to a problem you have dealt with successfully many times before, a gut decision may suffice.

Chess masters have been known to make moves based on gut decisions. They do this on moves that would take a novice much longer to think through. The idea is that these chess masters have seen this exact scenario or one quite close to it many times before. As a result, they subconsciously process the positions of the pieces and what move has been effective in the past. They don’t make moves blindly. Rather, the processing occurs so quickly that it feels like the answer just came to them.

Significant level of competence

If your area of expertise is directly in line with the problem at hand, you may get away with a gut decision. It’s worth noting that the problem must be directly related.

So, if you’re an expert in product development, more specifically software product development, and even more specifically healthcare software product development, you just might be in a position to make a call about a proposed healthcare software feature addition without doing extensive research. You know this field inside and out, you have been in it a long time, and you just “know” that this new feature isn’t going to fly. You want the domain in which you are highly competent to be as closely related to the decision at hand as possible.

Feelings of familiarity and competence are accurate

In today’s word of information overload, we tend to take in a lot of information without taking a lot of time to digest and judge its level of credibility. So, your feelings of familiarity and competence may be misguided. Just because you’ve been reading some articles on the topic doesn’t mean you know enough about it to appreciate the complexity involved in the decision at hand.

A common phenomenon I see today is what I like to call “101 knowledge”. Due to the amount of high level content we consume across disciplines, everyone has introductory knowledge for just about everything. That’s okay of course. I am as guilty as anyone for loving to learn about anything and everything. The problem arises when you mistaken your 101 knowledge as representing some level of expertise or competence. It’s not. So, before you make a gut decision based on the premise that you are indeed competent in the necessary domains, take a moment to ensure that these feelings of competence are accurate.

Alignment between gut and head

Even though we’re talking gut decisions here, the head should still be prepared to follow along. If you are about to move forward on your gut decision but your mind is uneasy, proceed with caution. Better yet, hold off on making that decision if possible.

For example, if you are a venture capitalist and have a startup team in front of you that screams “winner“, you may be prepared to accept some informational gaps and move forward on a gut decision. If before pulling the trigger your head chimes in to suggest something isn’t quite right — it probably isn’t. There may be a gap in the data that is so wide that the supposed gut decision is more of a blind decision. If you are familiar with the decision at hand and have an appropriate level of competence, making that gut decision when the head follows along may not be a bad idea!

Limited time and/or data available

In the fast moving and complex world you operate in today, some decisions have to be made in less time and with less data than you would like. In these situations, try to get and wrap your head around the most important information and make a decision knowing that there are definitely gaps in the information that your gut is filling. If indecision is an option for you, consider it!

I would think that many business incubator review teams operate in the realm of not enough information and time. The hot startups are often on the bleeding edge in their industry. That means you may have to assess them by making comparisons to existing companies that are only loosely related. Add to this that you have tight timelines to review startup applications to build your next cohort. You will have a final decision that at the very least has some elements of a gut decision.

Gut Decisions – Bust

Overemphasizing your level of expertise

As mentioned previously, it is common and often catastrophic to think that you can successfully apply your expertise in one domain to another. This holds true even if the other domain is seemingly related. It’s difficult for you to recognize where your particular expertise turns into overconfidence. It’s normal to think that because you are a star in one domain, that you are likely a star or close to it in a related domain. Heck, it’s common to think that because you have managed to become an expert at one thing that you’re at least decent at almost everything else by default! Unfortunately, this just isn’t the case.

For example, if you’re on a review team at a business incubator, it might be tempting to think that because you have extensive experience with software companies, you are also able to accurately review applications from hardware companies. After all, they are both technology. Software and hardware tend to work together anyway. As a result, you review and pass judgment on hardware companies with the complete confidence of a hardware expert despite lacking important domain specific expertise.

While you are better off than a high school English teacher to review these hardware applications due to your related expertise in software, you are most definitely not an expert in hardware. Failing to admit and make known your lack of expertise could lead to critical errors in judgment.

Highly complex decisions requiring strategy

Highly complex decisions with a number of variables require strategic thinking. It is risky for you to make a gut decision in these instances. The human brain can deal with approximately 5-7 pieces of information at any one time. Complex decisions often require you to juggle more variables than this. As such, failing to take the time to digest all of the information carefully using decision models or leveraging powerful software can lead you to try to fill gaps that are just too big for your gut to fill.

Technological solutions can help you make informed decisions within your time constraints. A lot of the time spent making a decision is actually spent collecting the data, organizing it, getting it to the right people for review, and then aggregating everyone’s input. If you can streamline this process you have an opportunity to avoid gut decisions even when time is tight.

Overconfidence based on previous success

We don’t attribute enough of our success to good luck. We give too much credit to bad luck when things don’t pan out. This can lead to feelings of overconfidence and key decision makers making gut decisions for the simple reason that previous gut decisions have worked out. For any one individual, it’s likely that the sample size of complex decisions successfully made by the gut is too small to rule out luck as the main contributor.

A recent example that encompasses this and other errors  of gut decisions is Ronald B. Johnson’s dismissal as J.C. Penney’s CEO after only 17 months. He had a stellar educational pedigree with degrees from Stanford and Harvard. He helped grow Target into the retail behemoth it is today. He was the creator of the Apple stores we all love to enter even if we’re not in the market for a new device. These giant successes are attributed to his “ability” to make great gut decisions.

His gut failed him at J.C Penney. He shunned naysayers. He wanted to be surrounded by believers. Making company changing decisions governed by data was not an option. He would once again trust his gut to lead yet another corporation to increased riches. Except he didn’t.

There is a good chance that his gut decisions that were successful in the past encompassed a large element of luck. He thought it was based on superior intuition. The result was overconfidence in his ability to make great gut decisions.

Emotionally or mentally drained

If you aren’t in a strong mindset, you are prone to make an irrational decision too quickly. Emotions can cause you to disregard or undervalue evidence that is contrary to how you feel in the moment. Fatigue can make quick and easy decisions attractive.

Think back to my previous post based on Daniel Kahneman’s system 1 and system 2 for decision making. Recall that most of your cognitive load is taken on by system 1. System 1 acts subconsciously for the most part and therefore making decisions without you understanding why. This is okay most of the time. When faced with a complex decision, system 2 is supposed to step up to the plate and think through the complexities methodically and consciously. It’s perfect, right?

Well, when you are drained, system 1 will step up to the plate when it shouldn’t and make decisions quickly and subconsciously. That means a gut decision that is closer to a blind decision for you and your organization.

My Biased Stance on Gut Decisions

As someone who spends my entire working day and much of my personal time helping to grow a submission management and decision-making software startup, I stand rather firmly against unnecessary gut decisions. There is indeed a time and place for them. We even make them here at from time to time. However, I strongly believe it is mission critical for your organizations and teams to put systems and software in place that enables data driven and collaborative decision-making, even when time is limited. In the end, the investment required to optimize your submission management and/or decision-making process is small when compared to the cost of poor gut decisions and inefficiencies.

What do you think? Can you be successful long-term by relying strongly on your gut and bypassing all of the work involved to collect and analyze the relevant data? Is this rigorous approach to decision making just a waste of time? Let’s talk about it below!

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