Business intuition’s blind spot

Business intuition’s blind spot

I saw this YouTube clip explaining why it can seem as if good-looking people are jerks, and why it seems like healthy food always tastes bad. It made me realize the same effects happen in business, and it’s a bad thing.

The YouTube video uses a nifty 2×2 matrix, plotting how “nice” people are versus how good looking you find them. If you’re single and looking for dates, you’re likely to gravitate towards nice people and good-looking people (rather than unattractive mean people). As a result, your encounters with potential dates will have an implicit selection bias where the only mean people you try to date are also good-looking. So your intuition may incorrectly begin to sense that good-looking people are disproportionately mean.  Your experience has a blind spot.

niceness

It makes the same argument for food. Since you don’t seek out unhealthy food that tastes terrible (ex. pond scum), you’re left experiencing healthy food that tastes terrible, healthy food that tastes good, and unhealthy food that tastes good. There are 4 possible outcomes, but you only experience 3 of them. In that biased sample all the bad tasting food you regularly eat is healthy, causing your intuition to incorrectly feel as if all healthy food tastes bad.  Your culinary intuition has a bind spot.

taste

The same predicament plays out in how people form their business intuitions.

In this case, if we created a 2×2 matrix plotting how successful versus how memorable companies are, it might look something like this:

business-matrix

We businesspeople all walk around with some version of this mental matrix. Yet a problem arises as we form our business intuitions based on companies that exist (because we run into those companies in the course of our lives) and companies that are especially memorable. Meanwhile, forgettable companies don’t easily come to mind, nor do the lessons we could learn from them. We’re also less likely to hear about failed businesses, since success has many authors but failure is an orphan.  Successes can be big and loud, while failures quietly creep out the side door when nobody’s watching.

As a result, business intuitions are shaped with an implicit selection bias that excludes lessons from forgettable failures. This is especially problematic because the vast majority of businesses fall into this category: 70% – 90% of businesses fail. Our intuitions are blind to the biggest section of the dataset.

matrix-ii

Making matters worse, it may even be a stretch to say businesspeople remember forgettable successes. For example, people think about forgettable successes so rarely that, as you look at the successful-forgettable quadrant in the graphic above, you probably didn’t notice SentCor isn’t a real company. A completely made up company is just as meaningless to most people as CSX, a company worth more than SnapChat. However if I’d put SentCor on the successful-memorable list it would have jumped right out.

This is a quick-and-dirty illustration of why intuition isn’t, by itself, a great way to understand what makes businesses survive or fail. Unchecked, our brains tend to cling to a few memorable examples and omit everything else. These omitted “others” are the overwhelming majority of cases in the history of commerce.

As we analyze and emulate the memorable few, it’s important to remember we’re only seeing a tiny part of a much bigger picture. Business intuition has a blind spot.

This Post Has One Comment

  1. Jessica

    Fun one this time Thomas. Daniel Kahneman would be proud. 🙂

Leave a Reply