Executive decision making often relies on gut instinct

Bosses often question information that contradicts their intuition, despite knowing the dangers of doing so

Business executives may be blessed with all kinds of data to keep them in the loop. But when it comes to making important decisions, it seems, most of them still prefer to rely on their instinct to guide them.

As maverick Apple leader Steve Jobs once said: "You have to trust in something – your gut, destiny, life, karma, whatever."

According to a survey of 174 leading organisations carried out earlier this year by the Economist Intelligence Unit (EIU), many executives will question information that contradicts their intuition, even though they often know the dangers of trusting their gut.

The study, commissioned by the US software firm Applied Predictive Technologies, found that just 10 per cent of executives surveyed would do as the data suggested if that action didn’t sit right with them. Most would either ask for the data to be re-analysed, seek further information or simply ignore it.

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This is despite the fact that 59 per cent of those who undertook the survey described their approach to making significant management decisions as being “empirical” or “data-driven”.

One contributor to the study, Prof Stefan Thonke of Harvard, was quick to highlight the dangers involved in relying on gut feeling rather than credible data, particularly when someone is making decisions about issues that they haven't confronted before. Not everyone is Steve Jobs, it seems.

“When there is a high degree of novelty, our insights are limited at best or at worst deeply misguided,” said Prof Thonke, a professor of business administration at Harvard Business School.

With use of analytics software in organisations rising from 12 per cent in 2009 to 33 per cent last year, according to Accenture, you'd be forgiven for expecting business leaders to be increasingly guided by evidence-backed data. However, Alan Lyons, director at the Dublin-based business psychology consultancy KinchLyons, isn't too surprised by the EIU study's findings.

“Most of us are guided by emotionally made decisions, but few of us are prepared to actively admit to this. Executives in particular can find it quite insulting to be told they’re not necessarily acting rationally,” Mr Lyons said.

Impulse control

“Working from a gut level is fine so long as you have good impulse control and reality testing as well to counteract it. But if you don’t then problems can quickly emerge,” he added.

Dr Melrona Kirrane, an organisational psychologist and lecturer in human resource management at Dublin City University Business School (DCUBS), told The Irish Times that reliance on intuition in making crucial decisions is well-documented. However, some of the theories around it are in direct opposition to each other.

“The use of your gut in making a decision flies in the face of classical decision theory,” Dr Kirrane said, “which states that when faced with two options, or more, we generate all possible alternatives, generate pros and cons of each, and rationally select the best option.

“Another school of thought, headed up by Simon and March in the 1950s, said we do no such thing,” she said. “Instead, they said, we ‘satisficed’ – meaning we select an option that satisfies the situation. Often that option is not the best one, but the one most people will agree with, which is quite different.

“They also introduced the idea of ‘bounded rationality’,” she added. “Which means that our rationality has limits and we are not smart enough to work out everything about everything. We have to go with what we can understand or our gut feeling about something.”

Matching intuition

No matter what the theory, most of us are really only comfortable with evidence of any kind when it closely matches our own intuition, according to Dr

Michelle Hammond

, a lecturer in organisational behaviour in the Department of Personnel and Employment Relations at University of Limerick.

“When evidence and our intuition are mismatched, we experience what is termed as cognitive dissonance,” Dr Hammond said. “Basically, cognitive dissonance is an uncomfortable feeling we experience when we hold two inconsistent thoughts, ideas or beliefs. We want to get rid of this feeling as quickly as we can.

“We reduce dissonance by changing our thoughts and beliefs,” she said. “However, we are not likely to say ‘my intuition must have been incorrect’. What we’re most likely to do is to avoid the evidence that is inconsistent with our intuition or focus on and search out information that is consistent. This is known as the confirmation bias.”

Dr Hammond went on to suggest that part of business executives’ reliance on their gut may stem in part from society’s romance around leadership. As with the hero worship of leaders such as Steve Jobs, there is a lot of love for those who are seen to create their own success by doing things differently.

“We often attribute company success to the leader, rather than to circumstances. If we glorify the leader, then they may easily come to believe that they are the ones responsible for the success of the firm and trust their intuition even more when making decisions.”

A somewhat disturbing aspect of the Economist Intelligence Unit study is that it shows there is little accountability in decision- making. According to the survey findings, 19 per cent of decision-makers said they are not held accountable for their actions at all.

As the study goes on to show, this lack of accountability may be compounded by a lack of transparency around the decision-making process, with 64 per cent of executives reporting that information about the process is limited to senior management alone.

Presidion, the Dublin technology provider of analytics software and services (formerly known as SPSS Ireland), has worked with many well-known Irish companies to help them learn how to get more out of their data.

Presidion director Barry McIntyre is, perhaps not surprisingly, all in favour of having business leaders using data more when it comes to decision-making. However, he also understands how some executives might trust their own instinct more than a pile of data.

More than data

“I’ve never encountered a situation in which people have taken a decision based purely on what the data has told them,” he said. “There’s always a certain amount of business acumen needed as well. Data can be helpful in minimising uncertainty. It isn’t a magic potion, but it can bring clarity when helping to make a call on something.

“Of course, people can manipulate data to support their theories,” he concluded.

"But, used correctly, it can also help business leaders to confirm their hunches so that any decision they make is one that will more likely bring success." Read the EIU study, Decisive action: How businesses make decisions and how they could do it better, at http://iti.ms/1DwqkWm