We have all experienced “gut feeling” before. Should we follow it and what exactly is it?

What Is a “Gut Feeling”?

In the past gut feeling was marked off as being emotions that we best should not take into account (in the west anyway). Research from the last few years suggest something completely different thou. Your gut feeling is a message form your subconscious, which is trying to tell you something. Our subconscious is like a powerful computer that has a bunch of data as its basis for computation, namely our experiences and learnings. Anything you have experienced and learnt (for example through reading) is neatly filed away. The main issue with this data storage is that we cannot actively access it. In short, if you have a bad gut feeling, the data stored in your brain suggest that whatever you are considering is a bad idea. If you have a good gut feeling on the other hand the data within you suggests that you are about to do something right. This comes to another important issue which we will explore in more detail later. As you cannot access most of the data in your subconscious actively, you will not be able to explain your gut feeling.

3 Reasons Why You Should Follow Your Gut Feeling

To the question if we should follow our gut feeling, my personal answer is YES. There are several reasons for it. The first and simplest one is, that doing anything with a bad gut feeling may turn into a self-fulfilling prophecy. If you decide to do something despite having a bad gut feeling, the feeling may start you thinking negatively about what you are doing. So even if your gut feeling was wrong, the mechanisms within you can make sure that in the end you were right. Be careful thou, a bad gut feeling should not be confused with feeling uncomfortable. You can only grow as a person by doing things outside your comfort zone. This is an issue that needs careful consideration. If there is not much at stake for you, there is little reason to not try something and learn from it. If the stakes are high, it is better to engage in a minimax type decision and go with the safer option.

The second reason is that your gut feeling is giving you feedback on the topic at hand. Basically, your subconscious has gone through the data stored and has come to a conclusion. Say you are about to buy a car and you have a feeling of sickness in your gut, your subconscious is trying to tell you that something is off about the deal. Maybe something is wrong with the car, or maybe the seller is a shady guy. In this case it is better to walk away from the deal. This becomes especially important once you have gathered a great deal of experience in a certain topic. If you are a mechanic, you will have a good intuition about cars as you work on them daily. If you are a salesperson, who is in contact with a lot of people buying and selling cars, you will also have a great amount of experience when it comes to people.

The third reason is that when using our intuition, we are pretty good at guessing what the future may look like. Machines and algorithms can only use the past and make calculations from this, which means that so called “black swan” events will always catch them off guard. We need to discern between risk and uncertainty. Some of you might think that’s the same, but it is not. Risk means that probabilities are known. Uncertainty means that it is unknown and there is no rule or law or probability that can describe what will happen in the future. We live in an uncertain world and thus we need something to deal with uncertainties. For this we have our gut feeling and subconscious to help us with.

We need to be careful with when to use which decision-making tool. In one of my previous articles I wrote about probabilistic thinking and how to use it to make decisions. Many readers or people listening to one of my presentations have asked me how to use probabilities when the probabilities are unknown. In this case my answer was that you should try to make an educated guess. If you can’t, it is more about the process of thinking, as some of the behavioural economic laws basically describe how people try to make decisions. Knowing some of these concepts can help you make conscious decisions. To sum up: If you have to make a decision about something that has little data and that is governed by uncertainty, you better listen to your gut. If you are looking at something that is a recurring decision and there are formulas and data to calculate the risk, then you can make a conscious decision.

Rules of Thumb

At guessing the future, rules of thumb perform better than complex calculations. Studies by Gerd Gigerenzer found that rules of thumb nearly always outperform calculations. Also experienced managers base most of their decisions on their gut. The better they are at their job and the higher they are on the corporate ladder, the more gut decisions they make.

A typical rule of thumb is using 1/N when balancing your stock portfolio. If you look at the portfolios of your investment advisors, you will see them using it (even thou they sell you a complex investment strategy).

Another example is the concept of Pareto. Look for the one to three most important parts for a decision and only look at those. Often there is one single factor that makes up 80-90% of a decision, so why look at the other 10 factors compiling the last bit? Picking one criterion to make a decision is a perfect rule of thumb to use when quickly making decisions incorporating your gut feeling or even your conscious mind. It is faster, easier, and less expensive than using consultants or complex calculations.

One further rule of thumb is to invest into things you know. Investing in stocks that have a strong brand and are well known by the masses tend to be the best investment. In a competition by Capital, two researchers (one of them Gerd Gigerenzer) submitted a portfolio of 10 stocks. They selected the stocks by asking people on the street in Berlin which companies they know best. While most portfolios dropped 18% in a 6-week period their portfolio gained 2,5%. This simple concept outperformed complex systems, computer programmes and hardened experts. This is not a rare case, in other experiments laymen outperformed CIA experts in predicting which countries would have political instability in the future.

Overthinking Leads to Bad Decision-Making

I favour taking more time for a decision. This is not necessarily to consider more information. Often, I need the time to get clarity on my hunches. In a distractive world it is important to sit down in peace and quiet and focus on your feelings. Do not fall for the information paradox thou. The more information you consider the worse your decision will be.

Professional sports players make millisecond decisions all the time; many thousand during a game. If they tried to think about what they do, they would spend most of their time standing still. In a test, professionals were shown a video of a situation in a game. When the video was stopped at a certain point, they had to give a snap decision on what’s the best course of action for the player. After the snap decision they were given an additional 45 seconds to look at the frozen image and see if they change their decision. About 40% changed their decision after the 45 seconds. They were also asked to list all options that came to mind. What do you think the outcome of the experiment was? First of all, the snap decisions were always better than the changed ones, and the quality of decisions decreased with time. The order of the options that came to mind, where in order of excellence, ergo the best solution comes to mind first. As mentioned above your gut outperforms in uncertain situations. In sports, where you have several players (plus a referee) on the court at the same time, a huge amount of uncertainty is involved, since every player can change the future situation with his decision or movement.

I used to play competitive rugby and the results of the experiment explained above resonate with my experience. At one point I had a coach that made me focus on catching kicks (as a fullback it is something that you need to do a lot). The moment I had to focus on it I started to stop catching kicks and regularly failed at it in games. In my time as a player this happened several times. When you are experienced and start to focus on things that you do automatically, your performance declines rapidly. It is important to analyse first, if you need to focus on it consciously, or if you are already performing well and better leave it be at that. When I played intuitively and just did things according to my gut, I played the best.

The Effects of Overthinking on Willpower

If you are a decision maker and make decisions on multiple occasions during a day you will also need to preserve your willpower. The more you mull over a decision the more willpower it will cost you. This will mean either the quantity of the decisions you make or the quality goes down.

Mulling over a decision often occurs when you spend time trying to explain your gut feeling. Haven’t we all been there? You have to make a decision in an uncertain situation, with little data at hand. Your gut feeling gives you a very clear direction, but then we start questioning. Why do I have the feeling, how do I explain it etc. All of this costs you valuable time and energy and thus willpower. I have been in this situation many times and ended up choosing the wrong path. I had to learn the hard way, that trusting my gut is the right way to go. I have been a strong believer in terms like “My gut only tells me when I am hungry and that’s it.” Turns out your gut has way more to tell you than that.

Reasons Not to Follow Your Gut Feeling

Before we go into how to use your gut feeling effectively for decision making, we should look at reasons to not follow your gut. The main reason in my eyes is that your gut feeling is based on your experiences and it is important to understand where you come from.

A prime example is social norms. We grow up observing how society works and thus we establish a gut feeling for how to behave in social situations. This is very culture specific and depends on your family setting. If you are an American going on a trip to say Japan, there will be many instances where your gut will mislead you. If you have been to Japan many times ore studied the culture extensively you will develop a gut feeling for how to behave there.

Now, how you grow up can influence you even more. Our culture and our growing up affects our moral and social behaviour extensively and you would be surprised by how much it does. We often believe we make conscious moral or social decisions, but in reality it is mostly subconscious and based upon what has been ingrained in us since a young age. There are biological/evolutionary reasons for this. Copying moral and social behaviour is important to stay alive. When humans used to gather in small groups, fitting into the group meant survival, while being outcasted meant death alone in the wild. Therefore, humans copy their cultural surroundings to fit in quickly. For example, if your “tribe” has the social norm that men make decisions only, you may have a bad gut feeling whenever a woman makes a decision. Or if your group has certain financial habits, diverting from these may give you a bad hunch.

Be wary of the media’s influence. We all know how much the media can influence our thoughts and this does not only affect the less educated, but everyone. It is really hard not to be lured into the media trap. Not only the advertisement industry knows how to affect our subconscious to influence our buying decisions. Politics and news outlets have just as well mastered the art of controlling peoples thinking.

Biases are another issue to be aware of. For example, the negativity bias (Prospect Theory by Daniel Kahneman) is an important one. It says that a loss hurts twice as much as a gain. Again, this is rooted in our evolution as mistakes are way more costly (i.e. dying) as a gain is positive. Whenever there is a decision which involves the risk/uncertainty of losing something, we will be drawn to the decision that reduces the risk of losing. If this is a good or bad mechanism is up to you. Some successful investors live by this (Warren Buffet and Charly Munger for example) and say that it is not about making great investments but minimizing bad ones. Another cognitive bias that will influence your gut decisions is the Dunning-Kruger-Effect. According to this effect unskilled individuals tend to overestimate themselves and people with good (not great) skill levels tend to underestimate themselves.

Tools and Tricks to Utilize Your Gut Feeling

Now that we have covered why to trust your gut, let’s have a look at tools and tricks to help you to utilize your gut feeling.

My most favourite tool is the fast-and-frugal tree. These get suggested by Gerd Gigerenzer in his books. When fast-and-frugal trees get used for diagnosing patients at hospitals, they outperform expensive and complex equipment. The diagnoses become faster, cheaper and more accurate.

How could you incorporate a fast-and-frugal tree into your decision-making processes? First of all, ask yourself if the decision you need to make is involving risk or uncertainty? If it is risk – in situations that are well known and were comprehensive data to explain exists - go with decision tools. If it is uncertain, go with your gut feeling (= fast-and-frugal tree).

Now the idea behind fast-and-frugal trees are simple rules of thumb. Below I have added a fast and frugal tree from Gerd Gigerenzer’s book “Gut Feelings”. As you can see, the tree does not pose several questions at once, rather you go through data in a sequential manner. The first question looks at the most important factor to predict heart disease, which in most cases delivers a 50% or more risk for heart disease. By this factor alone you have quickly taken out the patients with the highest probability of needing extra care. Not many tests were necessary. The second question takes the next most important factor and so on. This tree consists of 3 steps and is based on the “heart disease predictive instrument chart” - a chart full of probabilities, which comes with its own calculator and requires a bunch of tests to be made. Most physicians have trouble using the chart, while the fast-and-frugal tree reaps results faster, better and cheaper.

In order to be sure when to trust your gut and when not to, I suggest sitting down and writing a list of your experiences. This can take a lot of time, so be sure to spread this over several sessions. Look at your experiences from growing up, culture and work. Then identify areas in which you have great knowledge. Try to identify areas where your subconscious may be lacking or misleading you. For those areas I suggest going about your hunches in a way that Ray Dalio suggests: combine your gut feeling and conscious thinking. Use your gut feeling as a primer and talk with other believable people about it. Say you have a good gut feeling about making an investment in stocks, but you have no experience in it, go to a trusted individual and ask them. BUT (and here is a big but), make sure to ask them what they would do - NOT what they would advise you. Specifically ask what they would do in this situation. By asking in this manner, you can bypass defensive decision-making by the interviewee. Otherwise, they might give you the advice that protects them from harm. This works with doctors as well. Always ask the doctor what he would do and not what he would advise you. This is a nice psychological trick to get people’s honest opinion and thoughts on a matter. Trust your gut, if you are sure you are credible in an area and if not, got ask for opinions from someone who is.

Learn to understand the biases that work within you. Do some research on the biases that influence the human mind and our thinking. Once you do you will be better equipped to make decisions. The best way to minimize the effect certain biases have on our thinking is to study them. The knowledge will get added to your subconscious data base and will be taken into account by your subconscious. Especially when you are trying to make a conscious decision you should really take the biases into account. We can take investing as example: Say you are a start-up investor; a good mechanism would be to immediately say no to start-ups based on a negative gut feeling. If you have a good feeling about a pitch, you can start to get into more details. Once you look at the details you can cross check your assumptions and feelings with the biases of the human cognition.

Fast-and-frugal tree for decisions about start-up investments

If you want to know more about the topics of uncertainty and intuitive decision-making, I highly suggest reading Gerd Gigerenzer’s books. Another really great book on this topic is written by Malcom Gladwell called Blink, in which he complies different studies and a lot of Gigerenzer’s work. These books were eye opening and helped me understand past mistakes in decision-making and have improved skills in this area. Since I apply the principles, that I have laid out above, I managed to “dodge the bullet” as to say on several occasions.

Books on This Topic

Blink: The Power of Thinking Without Thinking by Malcolm Gladwell

Gerd Gigerenzer:

· Reckoning with Risk: Learning to Live with Uncertainty

· Gut Feelings: Short Cuts to Better Decision Making

· Risk Savvy: How to Make Good Decisions

The Basics of Intuitive Decision-Making