Should leaders trust intuition in making decisions?

Article author | McKinsey & Company: Andrew Campbell, Jo Whitehead

Executives should trust their instincts — but only if four tests are met.

One of the most important questions leaders face is when they should trust their instincts. Nobel laureate Daniel Kahneman and psychologist Gary Klein wrote in the March 2010 McKinsey Quarterly titled "Strategic Decisions: When Can You Trust Your Instincts?" The article talks about this topic in the form of a dialogue. Our research on bad decisions shows that leaders can't avoid the influence of intuition on judgment. All they can do is identify potentially biased situations and then optimize the decision-making process to reduce the resulting risks.

Our intuition approaches our accumulated experience in a synthetic way, so that we can form judgments and act without any logical, conscious thinking. Imagine how we react when we inadvertently drive across the midline of a road, or when we see a car suddenly turn from the side. Our bodies shook alertly, and before we had time to think about what appropriate response we should make, we had turned the steering wheel around.

When we're making less important decisions, the brain seems to work in a similar way. In fact, the latest findings in decision neuroscience suggest that our judgments are triggered by unconscious, memory-related emotional labels, rather than conscious trade-offs: We usually begin to feel something before we realize we have any thoughts. As a highly sane academic colleague recently commented, "I don't see any logical flaw in what you say, but it gives me a feeling of nausea".

Given the powerful influence of positive and negative emotions on the subconscious, it's easy to think that leaders should never trust their instincts: they should make decisions based solely on objective, logical analysis. But this advice ignores the fact that we can't get rid of the influence of intuition. It affects the way we construct situations, the options we choose to analyze. It makes us consult with some people and pay less attention to others. It encourages us to collect more data in one area rather than in another. They affect the time and effort we put into making decisions. In other words, even if we try to remain analytical and rational, intuition can influence our decisions.

This means that in order to insulate decisions from bias, we first need to know when we can trust our intuitions, believing that they are made based on appropriate experiences and emotions. There are four tests here.

Familiarity test: Do we often experience the same or similar situations?

Because the subconscious working is pattern recognition, familiarity is important. If we have enough suitable memories to search for, our judgment may be reasonable. Chess masters can take a good move in 6 seconds. "Appropriate" is the key word here, because many of the catastrophic decisions were made based on experience that later proved misleading — for example, the decision made by General Matthew Broderick, an official of the Department of Homeland Security, to postpone government action in the aftermath of Hurricane Katrina on August 29, 2005.

The right way to judge familiarity is to examine the major uncertainties in a situation – do we have enough experience to make the right judgments? The main uncertainties broderick faces are whether the levee has burst and how much danger residents of the city of New Orleans face. Unfortunately, his previous experience with hurricanes was all about cities above sea level. His previously learned response to waiting for "ground reality" turned out to be disastrous.

Gary Klein's "premortem technique, a method of identifying possible causes of project failure, helps shed light on these uncertainties. But we can also make a list of uncertainties and assess whether we have enough experience to judge them correctly.

Feedback testing: Have we ever received trusted feedback in the past?

Previous experiences will be useful only if we have learned the right lessons. When we make a decision, our brains label it as a positive emotion — recording it as a good judgment. So, without trustworthy feedback, our emotional labels tell us that our past judgments were correct, even though objective assessments would record them as wrong. For example, if we change jobs before we can be clear about the impact of a judgment, or if someone filters the information we receive to keep us out of bad news, we may not get the feedback we need. Because of this, the "echo bugs" around leaders are very harmful, and they tend to eliminate the feedback process that is crucial to forming the right emotional label.

Sentiment Measurement Test: Are the emotions we experience in similar or related situations measured?

All memories carry emotional labels, but some will be stronger than others. If a situation gives us a high degree of tension, it will throw our judgments out of balance. From personal experience, knowing that a dog can bite is different from experiencing the trauma of a dog in childhood. The first can help you interact with your dog. The second one may make you afraid of even the most docile dogs.

For example, the chairman of a board of a company lost a large amount of private money at the previous company while doing business in Russia. The harrowing experience has made him wary of the new company's proposal for a massive expansion in Russia. But he also realized that the experience could affect his judgment. He felt compelled to share his concerns, but then asked for a final decision to be made by the rest of the board.

Independence Test: Is it possible that we will be affected by inappropriate personal interests or attribution?

If we are trying to choose between two office locations in an organization, one of which is more convenient for us, we should be cautious. Our subconscious mind will give that more positive emotional label to that more convenient location. It is for this reason that it is standard practice to ask board members who have a personal interest in a particular decision to leave the meeting or not to vote. Also for this reason, we like the witty phrase "Turkeys don't vote for Christmas".

A similar logic applies to personal attribution. For example, when auditors are asked to prove to a Harvard professor that their professional training enables them to objectively draw an audit opinion, regardless of their relationship with a company, they are proving the opposite.

Write at the end

If a situation fails any of these four tests, we need to strengthen the decision-making process to reduce the risk of bad results. There are usually three ways to do this – stronger governance, more experience and data, or more conversations and challenges. Often, strong governance — having a boss who can overturn judgment — is the best guarantee. But a strong governance process is hard to establish and expensive to maintain (think of the U.S. Senate or the typical corporate board). As a result, seeking safeguards based on experience and data or conversations and challenges is often less costly.

For example, in the 1990s, Jack Welch knew he was going to face some tough decisions about how to take advantage of the internet, so he chose experience as a way to address his possible biases. He hired a personal Internet mentor who was over 25 years younger than himself and encouraged other top executives to do the same. Warren Buffett suggests additional challenges as a solution to the biases that arise during the acquisition process. Whenever a company pays part of the price with stock, he recommends using an "advisor who opposes the trade," who is only generously compensated if the deal doesn't go through.

No safeguards are common in all circumstances. Pre-death analysis techniques help bring uncertainty to the surface, but they cannot resist the effects of self-interest. More data can challenge assumptions, but it won't help decision makers affected by strong emotional experiences. If we're going to make better decisions, we need to consider why our intuition might disappoint us and what's the best safeguard in each case. We must not lose sight of our instincts. But we should know when to rely on it and when to guard against it.

Should leaders trust intuition in making decisions?

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