"Going With Your Gut" Outperforms Data Analysis for Innovation Decisions

Managers who use their gut instinct together with simple decision-making strategies may make equally good, but faster, decisions as those who use data to reach an outcome, a new study has found.

The report, co-authored by academics at the Business School (formerly Cass), King’s Business School, and the University of Malta, finds that the reliance on data analysis in decision-making might be counterproductive as this reduces decision-making speed without ensuring more accuracy.

The research, based on information from 122 advertising, digital, publishing, and software companies, finds that using data to inform decision making under high uncertainty is often not optimal. This may explain why 12 different publishers initially rejected the opportunity to publish ‘Harry Potter and the Philosopher’s Stone’ – because it had no data to inform its potential.

A recent survey revealed that 92 per cent of Fortune 1000 companies were reporting increased investment in data initiatives, although it appears this may not always be necessary.

The authors asked managers how they made decisions on their most recent innovation project, including the extent to which they used data, instinct, and other simple heuristics (mental strategies). The findings outlined that among those decision-making methods were:

• Majority – choosing what the most people wanted
• Tallying – picking the choice with the greatest quantity of positive points
• Experience – selecting the option that the most experienced individual on the team wanted.

Managers were asked whether they think they made the right decision and how fast they were in reaching that decision. Results showed that managers relied on their own instinct as much as data, using ‘tallying’ more than any other metric.

Dr Oguz A. Acar, Reader in Marketing at the Business School and co-author of the report, said: “This research shows that data-driven decision-making is not the panacea in all situations and may not result in increased accuracy when facing uncertainty.

“Under extreme uncertainty, managers, particularly those with more experience, should trust the expertise and instincts that have propelled them to such a position. The nous developed over years as a leader can be a more effective than an analytical tool which, in situations of extreme uncertainty, could act as a hindrance rather than a driver of success.”

Reference:

West DC, Acar OA, Caruana A. Choosing among alternative new product development projects: The role of heuristics. Psychology & Marketing. 2020;37(11):1511-1524. doi:10.1002/mar.21397

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