If we have no experience and make a gut decision on a critical issue for the business, it may be no better than a guess. We need to challenge this intuition
In small business, we usually lack the time to analyse the decision.
We are faced with decisions across all aspects of the business, and there are no rules or procedures that require us to pause before making any decision. We simply get on with it.
There is a view that intuitive or “gut” decisions in business may prove more effective than rational, well-analysed decisions.
The risk of going with our gut and our intuition is how we can know when to trust our gut when we have no criteria for determining this. A feeling that a decision is right is not the same as providing evidence that it is right.
The more decisions we make throughout the day, the harder each one becomes for our brain, and eventually our brain tires and looks for shortcuts
It needs more than a blink
Malcolm Gladwell in his book Blink put forward the idea that spontaneous decisions are often as good as — or even better than — carefully planned and considered ones.
Michael LeGault challenged this view in his book Think, saying:
“Critical scientific reasoning almost always involves a component of intuition, and intuition is almost always informed by experience and hard knowledge won by reasoning things out.”
Analytical and reasoned decisions require us to look outside ourselves, referring to others or to more information, statistics, data or research. Gut decisions occur within ourselves, so the answers need to be found somewhere from within. We will be guided by our internal knowledge, experience, and past emotional events.
At times, detailed calculations can provide false confidence. If these businesses base this analysis on incorrect assumptions, you may simply get the result you want.
Most CEOs and senior managers are more likely to default to their gut anyway.
Research on the decisions of 1000 CEOs and CFOs in large organisations in the USA found that many of even the most critical decisions were made based on the perceived knowledge of the CEO or CFO, their personal reputation and the politics within the business.
In short, there may be far more detailed analysis done in large organisations but when it comes to the final decision, it is very often the gut feeling of the boss that will decide what occurs.
When not to go with your gut
There is a very important caveat on “gut” decisions that we need to consider carefully.
Gut decisions based on deep and detailed experience or extensive training could be better than those based on analysis.
However, if we have no experience, we need to be extremely wary about making gut decisions without seeking advice or doing some analysis.
If we have no experience and make a gut decision on a critical issue for the business, it may be no better than a guess. We need to challenge this intuition.
This does not mean procrastinate and do nothing. It means pausing and challenging ourselves before taking the leap.
Making instinctive decisions under pressure
Gary Klein, a research psychologist and critic of Daniel Kahneman’s views on biases, did extensive research on the real-life decisions people make in high-pressure situations. He called his work Naturalistic Decision Making because it related to observed decisions in natural environments rather than in laboratory tests.
He studied people making critical, even life or death decisions, such as firefighters, military personnel, pilots and astronauts.
These people are making snap or intuitive decisions, with minimal information, with shifting goals, no procedures, under significant time pressure, and with potentially serious consequences.
While there is no question the decisions are made using their intuitive mental processes, and are gut decisions, they are being made based on years of experience and training. These experienced decision makers recognise patterns and they don’t compare options. They evaluate an option by imagining how it would play out.
Klein’s work demonstrated that expertise primarily depends on tacit knowledge, not on rules and procedures. He challenged that in these situations, gathering more information may not reduce uncertainty. In fact, he found that performance seemed to suffer when too much information was gathered, and that uncertainty can result from inadequate framing of data, not just the absence of data.
If we are stressed, lack sleep or are unwell, the quality of our decisions will diminish
So how might this situation relate to running a business and making intuitive decisions?
The critical thing to remember is that gut decisions are fine when a depth of experience and training backs them.
We read literature about high-profile and very successful business people who made snap decisions that proved highly successful.
Remember that these people may have had decades of experience doing similar or at least related activities in business and their decisions tapped into that experience.
If we are faced with a serious or critical situation in a business where the stakes are high and we have significant experience, more so than anyone around us, we can trust our gut and make the decision.
However, if we have little or no experience, or are feeling uneasy, it is strongly advised that we apply some critical thinking to the problem.
Seek out expertise and think the problem through — this may not be a wise time to go with our gut — and then hope for the best.
Fatigue, stress and the impact of wellbeing on decisions
Many businesses fail due to the ill health of owners.
Even if our wellbeing is not a threat to the business, if we are not at our best, the quality of our decisions will diminish.
If we are stressed, lack sleep or are unwell, the quality of our decisions will diminish.
The more decisions we make, the more energy-depleted our brains become. We become mentally fatigued.
'We give in to temptation when fatigued'
Sometimes the “now” can be very powerful. Good decision making for the future is often compromised by our impulse to pursue instant gratification — at the expense of better long-term outcomes.
We can also suffer from decision fatigue. The more decisions we make throughout the day, the harder each one becomes for our brain, and eventually our brain tires and looks for shortcuts.
Our willpower can become depleted and the quality of our decisions will also diminish.
A research project was carried out that observed the decisions made by judges on parole boards.
The research reviewed over 1100 parole decisions. The research explored if the decisions had any patterns associated with them. The most striking pattern was the reduction in positive decisions in the latter part of the day after the judges had made many decisions. Basically, the judges were getting tired and the easiest option was rejecting the parole application.
No matter how rational and focused we try to be, we can’t make decision after decision without paying a biological price.
It’s different from ordinary physical fatigue; we are not as consciously aware of being tired and low on mental energy.
The more decisions we make throughout the day, the harder each one becomes for our brain.
We could become more impulsive, lose our self-control, and give in to the easy options.
We could also simply avoid making a decision.
It was this latter option that the parole judges defaulted to. The mental effort in deciding to release a prisoner was much greater than the effort to leave the prisoner behind bars.
Our willpower and our self-control are not unlimited resources.
The most common life example is how we more easily give in to temptation, to eat those sweets, to have that extra glass of wine or that ice cream when we are tired.
So how can we make better decisions?
In every business failure, poor decisions led to the failure of the business.
We should all be able to better accept the limitations that exist with all of us. To be successful in business, it is very important that we accept these limitations and keep them in mind when making the critical decisions that could affect our businesses.
This does not mean procrastinate and do nothing. It means pausing and challenging ourselves before taking the leap
Here is a summary of some of the key things to keep in mind when making decisions:
Accept our limitations: Our brain cannot process everything. We won’t remember everything, and we will take mental shortcuts.
Consider the implications of the decision: Don’t sweat the small stuff but if the implications to the business are significant, pause.
We should not be afraid to listen to our emotions: How does the decision make us feel?
Be self-aware about what we are experienced at and what we are not: When we have little or no experience, we need to be careful making important decisions without advice and analysis.
Don’t be too proud to ask for help or at least to have a trusted person challenge our thinking and identify blind spots.
Apply Advocatus Diaboli: This is the Latin term for Devil’s advocate. This was an official role given to people to argue against why a person should be canonised (made a saint). This could be a trusted advisor.
Accept when we are tired, stressed or have been required to make many decisions: If we start making significant decisions when we are like this, they may prove unsatisfactory — or we may avoid making a decision.
Build rules, processes and systems into the business that will guide everyone, at least for the repetitive processes that occur.
Be clear what the strategy is for the business: Why does it exist, what does it stand for and what are the goals for the business?
Bob Weir is based in Waikato and is an independent director of Workwise, an organisation helping people with mental health challenges. He has advised hundreds of small businesses through his consultancy, Pinpoint Business. This is an excerpt from his book Why Businesses Fail, and the Journey Through Our Irrational Minds. He says the book is based on his 30 years’ experience in business, backed by three years of extensive research, including reading 1000 liquidation reports and court documents released under the Official Information Act.
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