“Well-bred instinct meets reason halfway.”

George Santayana (The Life of Reason: Reason in Society, 1905-6)

REASON OR GUT INSTINCT — WHICH RULES?

In my never-ending quest to make you more successful, I’ve taken the extraordinary step of subscribing to the Harvard Business Review (HBR). If you are not familiar with it, you are missing something — though not as much as you might think. Much of it is hard to read. Some of that, when read and understood, leaves you asking, “What’s the point?” In my days as a business writer, we called this MEGO (my eyes glaze over) copy.

That said, however, if you use the ETR method for burning through business writing (expecting to find one good idea here and two or three good facts), you can get through the HBR in about two hours.

The title of one article in the February issue caught my attention: “When to Trust Your Gut.”

This is a subject about which I’ve spent a good deal of time thinking. It had always seemed clear to me that a good gut instinct is worth even more than an MBA from Harvard, and this particular essay supported that view. According to its author, Alden M. Hayashi, senior editor of HBR, “the higher up the corporate ladder people climb, the more they’ll need well-honed business instincts.”

In other words, gut instinct is what separates the men from the boys in business.

In lowlier positions, the tendency to stick to the numbers is often beneficial. Middle managers who shoot from the hip often make costly mistakes. Those who sharpen their pencils and follow the rules keep the bottom line in black. As you move up the corporate power chain, however, attention to detail becomes relatively less important. At a certain level of leadership, having a reliable gut instinct is perhaps the most valuable thing.

Ralph S. Larsen, chairman and CEO of Johnson & Johnson, explains the distinction: “Very often, people will do a brilliant job up through the middle-management levels, where it’s very heavily quantitative in terms of the decision making. But then they reach senior management, where the problems get more complex and ambiguous, and we discover that their judgment or intuition is not what it should be. And when that happens, it’s a problem. It’s a big problem.”

Richard Abdoo, chairman and CEO of Wisconsin Energy Corporation, agrees. He says that as business speeds up and decisions must be made faster, this ability is even more important.

Henry Mintzberg, professor of management at McGill University and a longtime proponent of intuitive decision making, believes that the subconscious mind is continuously processing information that the conscious mind may not be aware of — and that a sense of revelation (the “Aha!” moment) occurs when the conscious mind finally learns something that the subconscious mind has already known.

Decision making, the experts tell us, is far from a rational and logical process. It involves that emotional charge you get that seems to tell you what to do (your gut instinct) when your mind is frozen or confused. 

Nobel laureate Herbert A. Simon, a professor of psychology and computer science at Carnegie Mellon University who has studied human decision making for decades,  believes that experience enables people to chunk information so that they can store and retrieve it easily. He believes that even the most sophisticated gut judgments can be broken into patterns and rules. In chess, for example, he found that grand masters are able to recognize and recall perhaps 50,000 significant patterns of the astronomical number of ways in which the various pieces can be arranged on a board.

Advanced intuition is developed by what the experts call “cross-indexing” — finding patterns in one area that correspond to patterns in another. Thus, a marketing executive might see something in a health-oriented advertising campaign that reminds him of something he should do in a financial promotion.

So gut instincts are really the subconscious suggestions that arise from all the patterns we have observed. They tell us more than we can logically know, because they represent much, much more information than we can logically process.

The bottom line is that you should trust your instincts. This is nothing new for longtime ETRs. But now we have the Harvard Business Review backing us up.

And, that said, how do you explain the fact that sometimes our gut instincts are wrong? Executives that Hayashi interviewed were quick to admit that their instincts have often been wrong. A couple of factors prevent us from realizing how faulty our intuition can be. The first is a tendency toward revisionism. The second is our tendency toward overconfidence. Various surveys have found that we overestimate our ability in just about everything, according to Hayashi. 

Tomorrow, we will talk about that. I’ll tell you exactly what you need to do to develop business intuition that is much, much better than average.

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LIVING RICH: FAKE IT TILL YOU MAKE IT

About Those Chilean Reds

Yes, Chile does make good wines, especially reds. If you want to make sure you are getting a good one without paying more than you should, remember this brand: Concho y Toro. All its reds are good. Some are great. If you want to taste a really good one, try the Cabernet Don Melchor Private Reserve 1997 at $40.

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WHAT LESSON CAN YOU TAKE FROM THE INTERNET FIASCO?

In a note to shareholders of Berkshire Hathaway, Warren Buffet, the world’s all-time best investor, suggests that the big lesson to be learned from the bubble that allowed trillions of dollars to be transferred from American savings accounts into the hands of a relatively small number of stock promoters and company owners (selling businesses that have no working model and no profits) was taught first by Aesop: “A bird in the hand is worth two in the bush.”