Trusting Your Gut vs Evidence-Based Decisions

According to the University of Copenhagen’s associate professor of economics Christina Gravert, common sense is not the best predictor of outcomes.

She says that challenging and testing your baseline assumptions is the best way to get what you want; for your life and your business.

In her recent TED talk, she presents some examples of this.

One of them is a worldwide multi-government program (including the US, UK, and Australia) called Scared Straight aimed at keeping at-risk teens from future offending by making them spend a night in prison.

However, as opposed to all other government programs and policies (which are not monitored for outcomes), researchers stepped in and ran a test with a control group — half of those teens were sent for a time-out at home instead.

Gravert said that the program seemed intuitive, but when the results came in, they were not what everyone expected.

“Instead of producing fewer criminals, it [the program] was producing more,” she said.

The increase in criminal behaviour directly induced by this program will cost these governments (and their taxpayers) billions of dollars.

But this example is not an exception, the movie “Moneyball”, starring Brad Pitt, is based on a true story of the Oakland Athletics baseball team’s general manager Billy Beane.

Beane broke baseball tradition when he took an analytical (sabermetric) approach to scouting, rather than the age-old intuition-based approach. He was ostracised by his peers, that’s until he consistently started winning matches.

Long story short, sabermetrics has changed the game of baseball forever and forms an integral part of scouting in modern baseball.

Another example is the life of Ray Dalio, the founder of the world’s biggesthedge fund: Bridgewater Associates.

Dalio wrote a book, “Principles”, in which he describes the three most important principles he lives (and works) by — one of them being, “Harness the power of full transparency”.

When talking about this principle, Dalio highlights the necessity for radical candour toward oneself and others.

“the biggest tragedy of men, is holding on to incorrect opinions,” he said.

In an interview, he talks about an example from his own life, when he followed his own common sense to make decisions about an investment that nearly cost him his firm, not to mention losing clients’ money and having to let go of staff.

Dalio credits his astounding success today to the application of this principle to his decision-making process by challenging (and having others challenge) his intuition, assumptions, and decisions.

“pain plus reflection equals progress,” he said.

Dalio’s methods are perceived as extreme by some, but his company’s results speak for themselves.