Should business leaders trust their gut decisions?

In an interesting study¹ from the 1950s a researcher analyzed the number of tickets sold for 28 passenger trains that had crashed during the decade. It was observed that these trains consistently had fewer people on board. Weather conditions, holidays, and number of tickets sold on the previous day, week and month were taken into account to determine if the reduced number of passengers on the ill-fated trains was merely a remarkable random fluctuation. The researcher rejected that idea and determined that human intuition was at work.

In other research², business leaders, who at the time had doubled their company profits in five years, scored above chance on computerized precognition tests. These successful executives claimed to be able use their intuition to foresee money-making opportunities.

Intuitions, flashes of genius, hunches, gut decisions… whatever you call it, many seasoned executives and entrepreneurs have shared with Aethos, during formal interviews and casual conversations, that they have had a profound sense of sudden knowing at some point during their career.  Despite dramatic examples of apparent intuitions like those noted above, psychologists are increasingly unraveling the seeming mysterious nature of intuitions. Initially, academia held two competing views. One defined intuition as an experience-based phenomenon that draws on tacit knowledge accumulated through experience and retrieved through pattern recognition.  The other view was that these experiences follow from a more spontaneous, innate creative ability.

The current thinking is that intuitions incorporate both elements. In particular, these experiences appear to represent a non-sequential – rather than simply linear and logical – way of processing information that simultaneously draws on both rational thoughts and emotional perceptions. The result is a kind of direct knowing without any use of conscious reasoning.  This latest theory observes that neither experience nor creativity alone is sufficient to produce trustworthy intuitions. Rather, it would seem that intuitions are most powerful when creative capacity meets a wealth of accumulated internal knowledge that can be understood or manipulated in new and novel ways.

New Insights for Leaders

Many studies support the value of gut decisions in the workplace. Aethos™ co-authored one of the most recent studies on the topic, which was subsequently published in the North American Journal of Psychology. This study³ was important because, according to Dr. Lynn McCutcheon, editor of the Journal, “It tested some of the latest thinking of what intuitions are and when they might best be heeded and trusted.” In other words, this new work offers guidance for if and when business leaders should trust their gut decisions.

The study involved an online survey of nearly 1,000 professionals at different employment levels who completed psychological tests of intuitive thinking and transliminality (the tendency for psychological information like imagery, ideation, and perception to come into and out of conscious awareness effortlessly; presumably due to enhanced interconnection or “crosstalk” among different parts of the brain). Three major findings emerged from this study:

• First, the results clearly supported the idea that managerial decision-making and entrepreneurial intuition can be a critical factor in business success. The bottom line is that hunches should neither be minimized nor dismissed due to their ephemeral quality.
• Second, intuitive thinking significantly correlated with transliminality, suggesting that intuitive ability is partly an inborn trait that is grounded in an individual’s physiology and which relies heavily on sensory and emotional functions. The bottom line is that creative capacity is a necessary ingredient for intuitive thinking.
• Workplace intuition increases as managers move-up the organizational chart. In other words, individuals with greater professional experience, market knowledge and authority are more likely to experience intuition in the workplace and show a willingness to act on them. The bottom line is that creativity is not enough to generate effective intuitions. Rather, the creativity often works best in conjunction with an existing storehouse of knowledge and experience from which previous limitations and parameters are identified and new patterns or opportunities can be recognized.

These findings are consistent with the latest theory of intuitions and generally support the concept of entrepreneurial intuition – the idea that successful entrepreneurs are passionate innovators and risk-takers, who have extraordinarily accurate hunches about future business opportunities because they have natural creative tendencies that allow them to understand and manipulate their accumulated experience and knowledge in new and novel ways.

Our Answer to the Question

The results of the study suggest that generally speaking business leaders can trust gut decisions; but there are some caveats about who will have the most accurate intuition and when it will occur.  Often business leaders make decisions that are fact-based and grounded in the experience of others (“if it worked for them, it will work for us“), as well as their own personal history. This is frequently a reasonable course of action since decisions based on quantitative data and mathematical models are almost always more valid than ones based on a person’s best clinical or qualitative judgment.  However, past experience and contemporary “best practices” can breakdown or become irrelevant in the face of non-routine decisions or ill-defined problems without existing precedents. These are the circumstances under which intuitions thrive.

Accordingly, we propose that intuitive thinking is an increasingly important skill for business leaders. Societal and economic forces are moving so quickly today that historic experience as a decision making tool has been marginalized. How could Google, Facebook and Twitter succeed in the face of Fortune 500 competitors? Founders like Mark Zuckerberg, Larry Page and Sergey Brin had intuitions about the power of their ideas. As Zuckerberg so aptly explained near the start of Facebook, “I don’t know what Facebook is or could be, but I know it will change the world.” These entrepreneurs so passionately believed in their mission that neither logic nor history mattered. How could non-hotel people like Barry Sternlicht and Ian Schrager change the way hotels are viewed today? Strernlicht saw value in a paired-shared REIT structure that everyone else left for dead. He also converted well established Sheraton hotels into Ws; a concept that meant nothing to the traveling public at the time. Likewise, Schrager took his experience in the nightclub business and had an intuition that he could adapt it to hotels. While the industry thought he was crazy, he created an entirely new genre of hotels.

An obvious question the study raises is whether someone can train for intuition. Maybe not fully taught in the classic sense, but the evidence suggests that intuition can be substantially nurtured and honed in professionals that exhibit natural intuitive tendencies. Indeed, valid methods like proprietary psychological questionnaires to screen emerging leaders for intuitive capacity are available. We also suggest that demonstrating how intuition works to tacit learners can open a door to greater learning by all managers.

Please contact the authors for a copy of the full study.