A short time ago, as part of my regular contribution to MomsMakingaMillion radio, I introduced the notion that relying on your gut feeling, specifically when women rely on their intuition, they tend to come up short in terms of business and investment decisions when compare to their male cohorts. In the beginning, I thought the article was playing well.
I wrote that making decisions with your gut was fine in a raw, untamed world where second guessing some emotion could lead to your demise. But once you enter into the world of business, you should check your gut at the door. “Men were making most if not all of the business decisions and were priding themselves on doing so with deductive reasoning,” I explained to one of the hosts Kat Bellucci, a self made woman who heads her own pension consultation business when she is not empowering women with financial knowledge along with her co-host, Gina Robison Billups. I continued saying that “deductive reasoning essentially removes the gut from the decision by compiling all of the available information and drawing a conclusion based on what was available.”
Intuition does have a place I explained, but in the area of networking, where getting a feeling about someone is often a good judge of whether they can be trusted or not. Yet, when the cold, hard facts are evidence of something other than how you feel, go with the facts. About 20 minutes following the broadcast, I received an email from Kat disagreeing. She said that she had great investment success when she ran her next business or investment move past her feelings.
So who was right? The wealth of research that points to the fact that gut feelings are not to be wholly trusted or the claim that without them, the cold, hard facts would be void of some integral element? (You can read the original article here.)
According to Andrew Campbell and Jo Whitehead, directors of London’s Ashridge Strategic Management Centre and coauthors, together with Sydney Finkelstein, of Think Again: Why Good Leaders Make Bad Decisions and How to Keep It From Happening to You (Harvard Business School Press, 2009) the realization that something doesn’t feel right in spite of evidence otherwise is not such a bad thing. But shouldn’t you be able to test your gut’s assumption?
They have come up with a test, four questions that can be used by anyone leading a business or simply trying to decide which investment seems right for their portfolio.
The first question they suggest you ask is whether you have any prior experience from which to draw your conclusions. This familiarity with a similar problem isn’t always fail safe either. The weather is a great analogy of how we react to certain types of situations. A light dusting of snow as is often experienced in the Pacific Northwest does nothing to prepare you for a snowfall in Buffalo. In this case, what you know and how you reacted to the event in the past has little bearing on what the actual event could bring.
You have heard the term “yes men”. These people are there for a reason and it is not a good one. They reinforce the emotional tags you put on an event so that when a situation similar to that one comes up again, you are conditioned by the memory. Problem with this is that from an objective point-of-view, you may not be making the right choice. The coauthors write: “Hence, without reliable feedback, our emotional tags can tell us that our past judgments were good, even though an objective assessment would record them as bad.”
Those emotional tags bias our judgement and play an important role in how our memory of a particular situation is handled in the future. If you have been bitten by a dog as a child, you know exactly what kind of emotional tags can be carried forward, even when it makes no sense. being wary is good except when it clouds your decisions in the face of conflicting facts.
One of the last biases the decision maker has to confront is the easy one. Not the one that is easy to make but rather the most convenient option. If you feel as though your vote on a particular solution is influenced by the easiest path, step back and let someone else make the call.
The authors understand that not all of these biases come into play in every decision but when they do, you need to take the appropriate action. “There are usually three ways of doing this—stronger governance, additional experience and data, or more dialogue and challenge. Often, strong governance, in the form of a boss who can overrule a judgment, is the best safeguard. But a strong governance process can be hard to set up and expensive to maintain (think of the US Senate or a typical corporate board). So it is normally cheaper to look for safeguards based on experience and data or on dialogue and challenge.”
When you are investing on your own for your retirement, take your time. Gut feelings often prod you into the feeling that whatever mistake you make now is easily undone. But as any little league umpire will tell you, taking that additional breath before making the call can make all of the difference in the world. Being your own boss is much the same: you must make the call but do it based on all of the information you have and if it doesn’t seem adequate, get more.