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Intuition, Success and Failures. We wish you a very successful 2016 based on healthy decision making.

Intuition, Success and Failures. We wish you a very successful 2016 based on healthy decision making.

Jan 8th, 2016

In December 2015 we looked at uncertainty taxonomy, resulting epistemological and ontological approaches to risk, all the way to intuition.

Some readers have asked for an example helping to differentiate intuition from the other approaches.

Intuition, Success and Failures.

We all experienced driving a car at night.
Certainly everyone recognizes the usefulness of  our cockpit instruments informing us on various functional and hazard parameters. At night we lit the cockpit and we use the front light to ‘see’ ahead.

Then we make decisions.
Our decisions can be stupid, like passing another car with limited visibility. Because we think it’s “ok” to do so, thanks to our “intuition”.
They can also be wise, protecting our vehicle, our life and the lives of those surrounding.
Depending on the country one performs the stunt, there is a lot of glorification of intuition, until one fails. And the careful drivers? Well they are just drivers, you know.

Intuition, Success and Failures. Intuition is certainly glamorous, but not very reproducible.

Think for example at the number of “ok” equity transactions you have performed versus the “absolute bangs” in your investment life. Or to the story of the famous Italian racing pilot, Tazio Nuvolari, who raced the famous 1000 Miglia around Italy with no headlights to dupe his main competitor in a comforting feeling, before turning the lights on in the last kilometres and passing him to victory. One success against how many forgotten victims?

A case of Base Rate Fallacy

which is defined by: “Ignoring available statistical data in favor of particulars.

Intuition remains, unfortunately, generally glorified, despite its obvious shortcomings. And there is an impressive volume of literature, self help courses on Self-Improvement, Intuition, “guts” based decision making.
Nothing wrong with the idea of improving ourselves based on the teachings of the ancient or recent Masters.
The “fans” of intuition will say that the Masters show the example that intuition wins and there is no reason to perform any type of rational analysis to make wise and fruitful decisions.
However, again, if we look at the few astounding successes like Julius Caesar, Napoleon Bonaparte, Winston Churchill, Albert Einstein, Bill Gates, Steve Jobs, Marc Zuckerberger and put them on the balance with the tens of thousands, millions of failures the result is less favourable.

The morale? Intuition is sometimes useful, but is far from being reproducible. Intuition should not be glorified as a tool of decision making. Healthy and robust decision making comes from rational thinking and risk based decision making.

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Category: Risk analysis, Risk management

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