Michael Nicholas – The Little Black Book of Decision Making

There is no doubt that the quality of our decisions impacts practically every aspect of our lives. Professionally, it is arguably the factor that makes the greatest difference to the level of success that we will achieve, because it determines how well every other talent or capability we have can be applied. Our proficiency in making those difficult judgment calls also governs the size of problem we can solve, and is therefore strongly related to how far we will progress and how much we will thrive.

The challenge is that making decisions, whether relating to strategy, operational crises, people, or even our health, cannot reliably be boiled down to pure reasoning in a process that will provide all the answers, though it has become common practice to try. Imagine, for example, a recruitment decision where the final two candidates can hardly be separated overall, though they have strengths in different areas. The trade-offs in such a case are highly ambiguous and no amount of data can offer an answer. Therefore, the final decision will always involve an element of “gut instinct”.

The unavoidable interplay between our sequential, slow, logical thinking, and those fast, automatic, intuitive reactions has prompted a long debate about whether rational analysis or intuition offers the most reliable and effective approach to decision making. Should we favour the fast, intuitive and seemingly effortless conclusion that somehow just feels right, or a slower, more thoughtful approach that requires much greater effort?

Gut Instinct vs. Logic – It’s Not a Case of Either/Or

Even in the Harvard Business Review, a widely-acknowledged source of very high quality information we see evidence of this everyday decision making dilemma. It has covered articles entitled Don’t Trust Your Gut, Learn to Trust Your Gut, Tell Your Gut to Please Shut Up, Intuition Isn’t Just about Trusting Your Gut, and more. And this is just from this one source!

This type of discussion is at best misleading, and could lead to significant errors. Rather than trying to boil such a complex issue down to an either/or conclusion, research indicates that the answer is much more nuanced. It suggests that to maximise successful outcomes, by far the most important dependency is to find the most appropriate balance between these two psychological modes of decision making: fast/intuitive and slow/rational. If recent evidence is correct, finding that balance—one that is an appropriate match to the circumstances—may be six times more important than good analysis in determining how well we make decisions.

An effective starting point for achieving balance is to grow our awareness in two areas:

  • From an external perspective – to establish the level of complexity that exists in the environment within which the decision must be made.
  • From an internal perspective – to build awareness of the huge impact that unconscious mental processes can have on the way we evaluate the circumstances we face.

Better understanding in each of these areas will assist anyone in improving their decision making, often remarkably quickly.

Complexity is a Game Changer

When data is available that allows useful predictions of future outcomes to be produced, problems can be solved logically. However, today, the conditions we face are increasingly becoming riddled with too many intangibles, complexities, unknowns and variables to allow every possibility to be identified, fully analysed and understood. Order and predictability are breaking down, with the result that historical data can often now only explain how things happened after the event and help us to create scenarios for what might happen next. It no longer has the predictive value that it used to.

Looking at this more deeply, every situation can be seen to sit somewhere on a continuum where the amount of order that exists is the variable:

  • At one end are conditions which are inherently highly ordered. These can be dealt with using a problem-solving approach, because useful predictions relating to the future can be made and the cause/effect relationship between actions taken and results achieved is easy to understand. Reasoning can therefore be very effective in determining solutions.
  • At the opposite extreme lies total chaos, such as may exist on a battlefield. The type of situation where financial markets must temporarily close because they are in meltdown is another example. At this extreme, projections relating to the future are meaningless, and even analysis conducted after the event may never fully unpick what happened. Here, the only approach to decision making that works is one of “emergence”, where actions are largely intuitively guided and must be rapidly reassessed and changed as necessary based on how the event unfolds.

Somewhere around the middle of the continuum, the dominant characteristic of the environment switches from order to complexity. This occurs at the point when historical data is no longer a useful predictor of the future, meaning that how the situation evolves can then only be fully understood with hindsight.

Which end of the continuum a decision-making challenge sits on has profound implications for decision makers, because at the complex end it can no longer be assumed that the solution that would have worked in the past will continue to be effective in the future. Here, completely new solutions are required, so the creativity that stems from our intuitive leaps becomes essential.

Both capabilities – analytical reasoning and creativity – are always necessary, but to different degrees at different points on the continuum. Thus, the ability to recognise the point where order and complexity switch dominance is the key to achieving the optimal balance between rationality and creativity in the decision-making process.

The Balance is Changing

That the complex end of the continuum is becoming increasingly important is reflected in the World Economic Forum’s 2016 list of the top 10 skills it believes will be needed in the workplace by 2020. The top three are “complex problem solving,” “critical thinking” and “creativity”: all vital elements of the mental capabilities necessary to make effective decisions when faced with rapid change and great uncertainty. Furthermore, “judgment and decision making” was on the list explicitly at number 6, and “cognitive flexibility,” which underpins creativity, was number 10.

Until relatively recently, good judgment was possible much of the time by adopting analytical reasoning processes, so it is perhaps unsurprising that this has tended to be adopted as people’s default mode. However, assuming the World Economic Forum’s forecast is even broadly accurate, achieving ongoing success will very soon require many of us to think again about how we approach our decision making.

Getting Creative

So, does this mean that intuition is now the magic ingredient in good judgment? It is certainly easy to find evidence to support such a belief

“The intellect has little to do on the road to discovery. There comes a leap in consciousness, call it intuition or what you will, and the solution comes to you, and you don’t know how or why.”

This statement by Albert Einstein, who is widely recognised as one of the most influential scientists of all time, appears to attribute his discoveries to… “intuition or what you will.” In fact, for the mathematical reasoning needed to validate his ideas, he often relied on others.

I have no doubt that you have had such flashes of insight—the aha! moments, when solutions just pop into the mind. Research has found that they happen most often when the conscious mind is relaxed, or involved in another task entirely, which demonstrates just how important the unconscious is to this process. Many shrewd top executives are recognised for precisely this ability, where intuitive judgments that cannot be explained by reason or logic, prove to be highly reliable. They get a sense of “knowing” what the solution to a problem is, without fully being able to articulate why. Such executives commonly believe that intuition differentiates them, giving them the ability to see significance in information which others overlook, to spot invalid assumptions, and to have faith in the sort of breakthrough strategies which others often rationalise as unviable. And there is very likely some truth in this belief, but it doesn’t come without risks.

This editorial will be published in full at a later date.