Strategic decisions:

When can you trust

your gut?
2
For two scholars representing opposing schools of thought, Daniel
Kahneman and Gary Klein fnd a surprising amount of common ground.
Kahneman, a psychologist, won the Nobel Prize in economics in
2002 for prospect theory, which helps explain the sometimes counter-
intuitive choices people make under uncertainty. Klein, a senior
scientist at MacroCognition, has focused on the power of intuition to
support good decision making in high-pressure environments, such
as frefghting and intensive-care units.
In a September 2009 American Psychology article titled Conditions
for intuitive expertise: A failure to disagree, Kahneman and Klein
debated the circumstances in which intuition would yield good decision
making. In this interview with Olivier Sibony, a director in McKinseys
Brussels offce, and Dan Lovallo, a professor at the University of Sydney
and an adviser to McKinsey, Kahneman and Klein explore the power
and perils of intuition for senior executives.
Nobel laureate Daniel Kahneman and
psychologist Gary Klein debate the power and
perils of intuition for senior executives.
March 2010 3
The Quarterly: In your recent American Psychology article, you
asked a question that should be interesting to just about all executives:
Under what conditions are the intuitions of professionals worthy
of trust? Whats your answer? When can executives trust their guts?
Gary Klein: It depends on what you mean by trust. If you mean, My
gut feeling is telling me this; therefore I can act on it and I dont
have to worry, we say you should never trust your gut. You need to take
your gut feeling as an important data point, but then you have to
consciously and deliberately evaluate it, to see if it makes sense in this
context. You need strategies that help rule things out. Thats the
opposite of saying, This is what my gut is telling me; let me gather
information to confrm it.
Daniel Kahneman: There are some conditions where you have
to trust your intuition. When you are under time pressure for a decision,
you need to follow intuition. My general view, though, would be that
you should not take your intuitions at face value. Overconfdence is a
powerful source of illusions, primarily determined by the quality
Daniel Kahneman is a Nobel laureate
and a professor emeritus of psychology and public
affairs at Princeton Universitys Woodrow Wilson
School. He is also a fellow at the Hebrew University
of Jerusalem and a Gallup senior scientist.
My general view would be
that you should not take
your intuitions at face value;
overconfdence is a
powerful source of illusions

4 Strategic decisions: When can you trust your gut?

and coherence of the story that you can construct, not by its
validity. If people can construct a simple and coherent story, they will
feel confdent regardless of how well grounded it is in reality.
The Quarterly: Is intuition more reliable under certain conditions?
Gary Klein: We identifed two. First, there needs to be a certain
structure to a situation, a certain predictability that allows you to have
a basis for the intuition. If a situation is very, very turbulent, we say
it has low validity, and theres no basis for intuition. For example, you
shouldnt trust the judgments of stock brokers picking individual
stocks. The second factor is whether decision makers have a chance to
get feedback on their judgments, so that they can strengthen them
and gain expertise. If those criteria arent met, then intuitions arent
going to be trustworthy.
Most corporate decisions arent going to meet the test of high validity.
But theyre going to be way above the low-validity situations that
we worry about. Many business intuitions and expertise are going to be
valuable; they are telling you something useful, and you want to take
advantage of them.
Daniel Kahneman: This is an area of difference between Gary and
me. I would be wary of experts intuition, except when they deal
with something that they have dealt with a lot in the past. Surgeons, for
example, do many operations of a given kind, and they learn what
Gary Klein is a cognitive psychologist and
senior scientist at MacroCognition. He is
the author of Sources of Power: How People
Make Decisions, The Power of Intuition,
and Streetlights and Shadows: Searching for
the Keys to Adaptive Decision Making.
Many business intuitions
and expertise are going to be
valuable; they are telling
you something useful, and you
want to take advantage
of them

March 2010 5
problems theyre going to encounter. But when problems are unique, or
fairly unique, then I would be less trusting of intuition than Gary is.
One of the problems with expertise is that people have it in some domains
and not in others. So experts dont know exactly where the boundaries
of their expertise are.
The Quarterly: Many executives would argue that major strategic
decisions, such as market entry, M&A, or R&D investments, take
place in environments where their experience countswhat you might
call high-validity environments. Are they right?
Gary Klein: None of those really involve high-validity environments,
but theres enough structure for executives to listen to their intuitions.
Id like to see a mental simulation that involves looking at ways each of
the options could play out or imagining ways that they could go sour,
as well as discovering why people are excited about them.
Daniel Kahneman: In strategic decisions, Id be really concerned
about overconfdence. There are often entire aspects of the problem that
you cant seefor example, am I ignoring what competitors might do?
An executive might have a very strong intuition that a given product has
promise, without considering the probability that a rival is already
ahead in developing the same product. Id add that the amount of success
it takes for leaders to become overconfdent isnt terribly large. Some
achieve a reputation for great successes when in fact all they have done
is take chances that reasonable people wouldnt take.
Gary Klein: Danny and I are in agreement that by the time executives
get to high levels, they are good at making others feel confdent
in their judgment, even if theres no strong basis for the judgment.
The Quarterly: So you would argue that selection processes for
leaders tend to favor lucky risk takers rather than the wise?
Daniel Kahneman: No questionif theres a bias, its in that direction.
Beyond that, lucky risk takers use hindsight to reinforce their feeling
that their gut is very wise. Hindsight also reinforces others trust in that
individuals gut. Thats one of the real dangers of leader selection in
many organizations: leaders are selected for overconfdence. We associate
leadership with decisiveness. That perception of leadership pushes
people to make decisions fairly quickly, lest they be seen as dithering
and indecisive.
Gary Klein: I agree. Societys epitome of credibility is John Wayne,
who sizes up a situation and says, Heres what Im going to do
and you follow him. We both worry about leaders in complex situations
6 Strategic decisions: When can you trust your gut?
who dont have enough experience, who are just going with their
intuition and not monitoring it, not thinking about it.
Daniel Kahneman: Theres a cost to not being John Wayne, since
there really is a strong expectation that leaders will be decisive and
act quickly. We deeply want to be led by people who know what theyre
doing and who dont have to think about it too much.
The Quarterly: Who would be your poster child for the nonJohn
Wayne type of leader?
Gary Klein: I met a lieutenant general in Iraq who told me a marvelous
story about his frst year there. He kept learning things he didnt
know. He did that by continuously challenging his assumptions when
he realized he was wrong. At the end of the year, he had a completely
different view of how to do things, and he didnt lose credibility. Another
example I would offer is Lou Gerstner when he went to IBM. He
entered an industry that he didnt understand. He didnt pretend to
understand the nuances, but he was seen as intelligent and open
minded, and he gained trust very quickly.
Overcondence in action?
Does management admit mistakes and kill unsuccessful
initiatives in a timely manner?
Non-C-level
1
C-level execs
80%
49%
20%
52%
Yes
1
Figures do not sum to 100%, because of rounding.
Source: December 2009 survey of 463 executive readers of the McKinsey Quarterly
Yes
No No
Executives responded to the survey after reading Competing
through organizational agility, by London Business School professor
Don Sull, on mckinseyquarterly.com.
March 2010 7
The Quarterly: A moment ago, Gary, you talked about imagining
ways a decision could go sour. That sounds reminiscent of your
premortem technique. Could you please say a little more about that?
Gary Klein: The premortem technique is a sneaky way to get
people to do contrarian, devils advocate thinking without encountering
resistance. If a project goes poorly, there will be a lessons-learned
session that looks at what went wrong and why the project failedlike
a medical postmortem. Why dont we do that up front? Before a project
starts, we should say, Were looking in a crystal ball, and this project
has failed; its a fasco. Now, everybody, take two minutes and write down
all the reasons why you think the project failed.
The logic is that instead of showing people that you are smart because
you can come up with a good plan, you show youre smart by thinking of
insightful reasons why this project might go south. If you make it part
of your corporate culture, then you create an interesting competition:
I want to come up with some possible problem that other people
havent even thought of. The whole dynamic changes from trying to
avoid anything that might disrupt harmony to trying to surface
potential problems.
Daniel Kahneman: The premortem is a great idea. I mentioned it at
Davosgiving full credit to Garyand the chairman of a large corporation
said it was worth coming to Davos for. The beauty of the premortem
is that it is very easy to do. My guess is that, in general, doing a premortem
on a plan that is about to be adopted wont cause it to be abandoned.
But it will probably be tweaked in ways that everybody will recognize as
benefcial. So the premortem is a low-cost, high-payoff kind of thing.
The Quarterly: It sounds like you agree on the benefts of the
premortem and in your thinking about leadership. Where dont you see
eye to eye?
Daniel Kahneman: I like checklists as a solution; Gary doesnt.
Gary Klein: Im not an opponent of checklists for high-validity
environments with repetitive tasks. I dont want my pilot forgetting to
fll out the pretakeoff checklist! But Im less enthusiastic about
checklists when you move into environments that are more complex
and ambiguous, because thats where you need expertise. Checklists
are about if/then statements. The checklist tells you the then but you
need expertise to determine the ifhas the condition been satisfed?
In a dynamic, ambiguous environment, this requires judgment, and its
hard to put that into checklists.
8 Strategic decisions: When can you trust your gut?
Daniel Kahneman: I disagree. In situations where you dont have
high validity, thats where you need checklists the most. The checklist
doesnt guarantee that you wont make errors when the situation is
uncertain. But it may prevent you from being overconfdent. I view that
as a good thing.
The problem is that people dont really like checklists; theres
resistance to them. So you have to turn them into a standard operating
procedurefor example, at the stage of due diligence, when board
members go through a checklist before they approve a decision.
A checklist like that would be about process, not content. I dont think
you can have checklists and quality control all over the place, but
in a few strategic environments, I think they are worth trying.
The Quarterly: What should be on a checklist when an executive is
making an important strategic decision?
Daniel Kahneman: I would ask about the quality and independence
of information. Is it coming from multiple sources or just one source
thats being regurgitated in different ways? Is there a possibility of group-
think? Does the leader have an opinion that seems to be infuencing
others? I would ask where every number comes from and would try
to postpone the achievement of group consensus. Fragmenting problems
and keeping judgments independent helps decorrelate errors of
judgment.
The Quarterly: Could you explain what you mean by correlated
errors?
Daniel Kahneman: Sure. Theres a classic experiment where you
ask people to estimate how many coins there are in a transparent
jar. When people do that independently, the accuracy of the judgment
rises with the number of estimates, when they are averaged. But
if people hear each other make estimates, the frst one infuences the
second, which infuences the third, and so on. Thats what I call a
correlated error.
Frankly, Im surprised that when you have a reasonably well-informed
groupsay, they have read all the background materialsthat it isnt
more common to begin by having everyone write their conclusions on a
slip of paper. If you dont do that, the discussion will create an enormous
amount of conformity that reduces the quality of the judgment.
The Quarterly: Beyond checklists, do you disagree in other
important ways?
March 2010 9
Gary Klein: Danny and I arent lined up on whether theres more
to be gained by listening to intuitions or by stifing them until you have
a chance to get all the information. Performance depends on having
important insights as well as avoiding errors. But sometimes, I believe,
the techniques you use to reduce the chance of error can get in the
way of gaining insights.
Daniel Kahneman: My advice would be to try to postpone intuition
as much as possible. Take the example of an acquisition. Ultimately,
you are going to end up with a numberwhat the target company will
cost you. If you get to specifc numbers too early, you will anchor
on those numbers, and theyll get much more weight than they actually
deserve. You do as much homework as possible beforehand so that
the intuition is as informed as it can be.
The Quarterly: What is the best point in the decision process for an
intervention that aims to eliminate bias?
Daniel Kahneman: Its when you decide what information needs
to be collected. Thats an absolutely critical step. If youre starting with
a hypothesis and planning to collect information, make sure that the
process is systematic and the information high quality. This should take
place fairly early.
Gary Klein: I dont think executives are saying, I have my hypothesis
and Im looking only for data that will support it. I think the
process is rather that people make quick judgments about whats
happening, which allows them to determine what information is relevant.
Otherwise, they get into an information overload mode. Rather
than seeking confrmation, theyre using the frames that come from
their experience to guide their search. Of course, its easy for
people to lose track of how much theyve explained away. So one
possibility is to try to surface this for themto show them the list of
things that theyve explained away.
Daniel Kahneman: Id add that hypothesis testing can be completely
contaminated if the organization knows the answer that the leader
wants to get. You want to create the possibility that people can discover
that an idea is a lousy one early in the game, before the whole
machinery is committed to it.
The Quarterly: How optimistic are you that individuals can debias
themselves?
Daniel Kahneman: Im really not optimistic. Most decision makers
will trust their own intuitions because they think they see the
situation clearly. Its a special exercise to question your own intuitions.
10 Strategic decisions: When can you trust your gut?
I think that almost the only way to learn how to debias yourself is to
learn to critique other people. I call that educating gossip. If we could
elevate the gossip about decision making by introducing terms such as
anchoring, from the study of errors, into the language of organizations,
people could talk about other peoples mistakes in a more refned way.
The Quarterly: Do you think corporate leaders want to generate that
type of gossip? How do they typically react to your ideas?
Daniel Kahneman: The reaction is always the samethey are very
interested, but unless they invited you specifcally because they
wanted to do something, they dont want to apply anything. Except for
the premortem. People just love the premortem.
The Quarterly: Why do you think leaders are hesitant to act on your
ideas?
Daniel Kahneman: Thats easy. Leaders know that any procedure
they put in place is going to cause their judgment to be questioned.
And whether theyre fully aware of it or not, theyre really not in the
market to have their decisions and choices questioned.
The Quarterly: Yet senior executives want to make good decisions.
Do you have any fnal words of wisdom for them in that quest?
Daniel Kahneman: My single piece of advice would be to improve
the quality of meetingsthat seems pretty strategic to improving the
quality of decision making. People spend a lot of time in meetings.
You want meetings to be short. People should have a lot of information,
and you want to decorrelate errors.
Gary Klein: What concerns me is the tendency to marginalize people
who disagree with you at meetings. Theres too much intolerance
for challenge. As a leader, you can say the right thingsfor instance,
everybody should share their opinions. But people are too smart to do
that, because its risky. So when people raise an idea that doesnt
make sense to you as a leader, rather than ask whats wrong with them,
you should be curious about why theyre taking the position.
Curiosity is a counterforce for contempt when people are making
unpopular statements.
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