Lesson 2: When to use your gut instinct

Best-selling books extol the intuitive decisions of great businessmen and successful sportsmen. The lure of the split second decision that separated the good from the great is a story that we all like to hear. We like it because it satisfies our own yearning that we can achieve the same level of greatness.

Daniel Kahneman describes two systems of decision making. The first, ‘System 1’ is “fast, automatic, effortless, associative, and difficult to control or modify.” With System 1 we use perception and intuition to generate impressions of the world around us.

System 1 works pretty well for most of the decisions we make. Intuition is necessary because we don’t have the luxury of enough time to deliberate every decision.

Intuition works well in stable environments in which conditions are stable, where feedback is clear and where there is a linear relationship between cause and effect. Yet, System 1 has its flaws. Many of these are rooted in the “flight or fight” responses of our animal ancestors.

System 1 tends to fail in non-linear systems where the link between cause and effect are not linked, for example financial markets. In these kinds of systems the underlying statistical properties change over time. The past may not be a good predictor of the future. The second decision making system that Kahneman describes is ‘System 2’. In contrast to System 1 it is analytical and “slower, serial, effortful, and deliberately controlled.”

With deliberate practice anyone can embed these methods into their decision making process. With practice you will know when to trust your gut and when to seek the opinion of others. You will be able to free your mind to think further and faster than other people.

How to use your intuition to make better decisions

  • Make your gut accountable: Be very wary of any decision that is justified by “My gut is telling me this is the right article of action.” If you can’t explain a decision such that another person could learn from it then you should re-examine the intuitive choice.
  • Recognise that your gut is subject to bias: Unchecked, intuition will lead us astray and result in poor decisions. We are much better at spotting biases in other people than ourselves. One way to spot your biases is to create a group that explores all sides of an issue.

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