When Not to Trust Your Gut.
One of the major themes on this site has been to trust your gut when it comes to business opportunity due diligence. The mind can too easily be swayed by con criminals waving the phantom dream which becomes more real than the actual coin of the realm. However, over at the Harvard Business School, Max Bazerman and Deepak Malhotra argue that when it comes to negotiating, we should not trust our intuition and rather rely on a rational checklist.
Their argument proceeds by analogy: just as visual illusions are compelling but wrong, so is relying on intuition when it comes to negotiation. The particular illusion they use is from Roger Sheppard's book Mind Sights: Original Visual Illusions, Ambiguities, and Other Anomalies (W. H. Freeman, 1990). (Roger Sheppard is also known for his auditory illusions: a rising pitch which seems to go up forever.) The seduction of these illusions are that even when you know the answer - for example, that the two tables are the same- it doesn't change your visual judgment that one table is bigger than the other. In terms of social influence, Cialdini calls this a click-whirr inference.
Cialdini and others point out that we need responses to our click-whirr inferences, especially when dealing with con criminals. But is the Bazerman/Malhotra approach correct for business opportunity due diligence? Do we need to be more rational? Or do we need quicker intuitive responses?
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Bazerman/Malhotra's key recommendations are:
- Employ "System 2" thinking to apply logic even in times of stress and indecision.
- In negotiations, schedule more time than you think you will need.
For due diligence, 2. is clearly correct. You need to spend a lot of time looking at the system before you need to become emotionally optimistic about it.
According to the authors, "System 2 thought is slower, more conscious, effortful, and logical. When you are carefully considering options, you are using System 2 thinking." So is this the right reaction for business opportunity fraud? Do we need to become more logical?
Well, yes and no. The problem with slow, conscious, effortful and logical approach is that we can become fixated on consistency, and do not recognize that our rationality is defending the phantom dream. For business opportunity due diligence, it is more important to learn the correct responses to the weapons of fraud. The correct analogy here to think of is playing bridge: it is better to learn many patterns of plays and then play intuitively and quickly, rather than having reason out, system 2, each correct play. Learning the many patterns of plays is "system 2" thinking, but using the patterns of reason require us to internalize these responses and act on our gut.
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