Big Data and Your Customer: Do You Believe the Numbers or Trust Your Instincts?

Big Data and Your Customer: Do You Believe the Numbers or Trust Your Instincts?
July 25, 2013 Comments Off on Big Data and Your Customer: Do You Believe the Numbers or Trust Your Instincts? Blog,General,Manager,Tips Pandora Kornfeld

Always go with your gut.” It’s one of the world’s most popular pieces of advice, and many successful people say that they have achieved great things by remaining faithful to their instincts. However, starting with Yale professor Ian Ayres and his 2007 watershed book, “Super Crunchers: Why Thinking-by-Numbers Is the New Way to Be Smart,” our gut instincts have taken a critical beating.

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Business psychology is its own discipline; you can get more info here if you’re interested in business psychology doctoral programs. However, even non-psychologist business professionals want to know when to trust the numbers and when to go with gut instincts. You can use data to make many decisions without interacting with your human instincts. Yet you can still use your gut — as long as you know when it’s appropriate and when you need to ask for the numbers.

In Praise of Data

A recent survey of U.S. and U.K. business leaders found 66 percent of businesses now have an executive-level chief data officer. Also, a recent Economist Intelligence Unit survey found that 60 percent of CEOs rely on big data for decision-making. The airline industry has relied on predictive data analytics for years to optimize seat prices based on the number of available seats on a flight. Also, the financial services industry has used data both for making investment decisions and sometimes, unadvisedly, for creating new investment products (credit default swaps, anyone?).

Manufacturers can use predictive analytics to optimize their supply chains. They can also predict when machines may break down, forecast when they will have to repair existing machines or purchase new ones and use their forecasts when budgeting for capital expenditures. In the U.S., health care is getting in on big data by starting to leverage the electronic medical record to predict population-health trends and treatment outcomes.

Are Gut Instincts Dead?

Not necessarily, according to an article from McKinsey & Company. Your “gut instinct” compiles your accumulated experiences so that you can make quick judgments. It’s still a reliable tool when used under these four specific circumstances:

  1. You’re in a familiar situation. If you’re playing a tennis match, then you don’t have time to dig through data to decide which shots to hit and where to hit them before every point. However, when you’ve hit tens of thousands of tennis shots, your instinct can pull together that experience to help you make fast choices. In business, think through the uncertainties you may face in a given situation, even if it seems familiar. Then, decide whether you have the experience to make quick decisions about those uncertainties.
  2. Your past experience was useful. Essentially, you need to have learned the correct lessons from your past experiences. When you make a decision, your brain usually associates that decision with a positive emotion. If you’ve surrounded yourself with “yes men” or received unreliable feedback about your decisions, then you could have a treasure trove of positive emotions associated with lousy past decisions. Make sure your past experience was honestly and thoroughly vetted before making a snap judgment.
  3. Your emotions are in check. Perhaps you’ve lost a lot of money on a certain type of venture and you’re faced with another decision about whether or not to invest in something similar. The negative emotions about past loss could blind you to the positives about your current situation. Don’t let your emotions be a factor when making an instinctive choice.
  4. Your personal interests are unaffected. Making a decision based on instinct, even if you’re making that decision for the company as a whole, could be a bad idea if the decision affects you personally. You may want to open a factory in Côte d’Azur because you’d love to fly out there annually to oversee the business, but that doesn’t mean that location will truly benefit your company, your shareholders or your employees.

Data is a tool in your toolbox — and it’s an important one. At the same time, don’t let data completely blunt your instinct. If you rely too much on data analytics, then you may lose your ability to make decisions quickly. Simultaneously, if you only rely on your gut, then you could be missing crucial pieces of information.


About the Author: Barbara McNamara, Ph.D., is an organizational psychologist and postdoctoral fellow. Her current research concerns how data analytics has transformed decision-making in the financial services industry.

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