Saturday, November 30, 2013

Trust-your-gut Based On Expertise May Yield Better Decisions

An experienced entrepreneur or small business owner understands having to make quick decisions based on incomplete information.  In fact, it's a way of business in small operations where there is rarely time, staff, or resources to research decisions before they must be made.

"It turns out there are conditions where using intuition is a good way to make the right decision," said Michael Pratt, of Boston College's Carroll School of Management. "What we found demystifies a lot of the information out there that says intuition isn't as effective as using an analytical approach."

Testing intuition against analysis, Pratt and co-authors Erik Dane, of Rice University and Kevin W. Rockmann, of George Mason, found that people can trust their gut and rely on intuition when making a broad evaluation in an area where they have in-depth knowledge of the subject.

Intuition has long been viewed as a less effective approach to critical reasoning when compared to the merits of analytical thinking. Yet intuition is about looking at patterns and wholes, which is needed when making quick decisions about whether something is real or fake, ugly or pretty, right or wrong.

A Warning
"The primary takeaway is: intuition is like nitroglycerin -- it is best used only in certain circumstances. Be careful when you use your 'gut'," said Pratt. "If you gained your expertise in a different field, you may not have the background to rely as strongly on your intuition."
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The trick is to know when to rely on your intuition, and when to punt.  If, as most successful entrepreneurs do, have five or more years experience in an industry, you should be able to make intuitive decisions.  However, if you are not a true expert, it's smart to know that and not risk making a poor decision than can cripple your business.

This research backs up your need to have an outside staff of specialists you can call on an as-needed basis, and why it is important that you start these relationships before you get too far into starting your business. 

For example, if a problem of accounting or taxation pops up, you want to be able to call an accountant for advice and not have to spend time explaining your business and what it does.  The same applies to an attorney, an HR consultant and so on. 

Use your industry expertise to make those decisions you are truly qualified to make, and know ask for knowledgeable advice in areas where you are not expert.

Story Source:  Erik Dane, Kevin W. Rockmann, Michael G. Pratt. When should I trust my gut? Linking domain expertise to intuitive decision-making effectiveness. Organizational Behavior and Human Decision Processes, 2012

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