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The Art of Intuition and the Science of Discovery

Posted By Kent Thune On November 26, 2013 @ 11:30 am In Philosophy,Psychology,Trading | Comments Disabled

“The intuitive mind is a sacred gift and the rational mind is a faithful servant. We have created a society that honors the servant and has forgotten the gift.” ~ Albert Einstein

What is intuition and how might it help or hinder an investor’s decision making process? A good philosopher begins with definitions, otherwise they risk building their argument upon a false premise. Therefore we begin with a broad, conventional definition of intuition from Miriam-Webster:

Intuition: a natural ability or power that makes it possible to know something without any proof or evidence: a feeling that guides a person to act a certain way without fully understanding why.

My intuition tells me that there are several things wrong with this definition. The primary problem is that it is a conventional definition and conventions only cover the surface. So let’s delve deeper by doubting or elaborating upon the last two words, “understanding why.” And where does this “feeling” come from? More importantly, how does one recognize intuition and differentiate it from potentially defeating signals coming from media noise, biases, and ego?

Personally, I do not believe that ideas just magically appear or that they arise from nothing. Roughly one year ago, I interviewed Barry Ritholtz for a writing project and I asked him about intuition in trading: He said, “I suspect the best traders learn to internalize lots of what they have learned over time, and what appears to be intuition is really the result of thousands of hours of hard work, research, practice, and experience.”

This is a good foundation for a practical meaning of intuition. It may appear as a gut feeling. However it is really just a culmination of learned knowledge that we call experience. But how and when can intuition be called upon and applied in the decision making process?

“Basketball is an intricate, high-speed game filled with split-second, spontaneous decisions. But that spontaneity is possible only when everyone first engages in hours of highly repetitive and structured practice—perfecting their shooting, dribbling, and passing and running plays over and over again—and agrees to play a carefully defined role on the court. . . . Spontaneity isn’t random.” ~ Malcolm Gladwell

Seeking is the opposite of finding; thinking gets in the way of feeling. The more you focus on seeking, the more you diminish the capacity for finding. In different words, intuition cannot be “called upon.” Searching for a specific piece of information can ironically make you miss the idea that may actually help you make the best decision.

For example, have you ever tried to recall something and it just would not come to your mind? This typically occurs when in conversation and you say the thought is “on the tip of your tongue” but you just can’t recall it at the moment. Hours or even days later, the information you were seeking seems to suddenly pop into your mind. This is because the part of your brain used for recall is not the same part that produces the answers.

Speaking of recall, some of you may recall the blog, TraderFeed, which combined trading and psychology, authored Dr. Brett Steenbarger, PhD, from 2005 to 2010. In one of his posts, The Role of Intuition in Trading Decisions [1], Dr. Brett teaches readers that there are two parts of the brain at work with learning:

An interesting research study [2] found that research subjects who took a tranquillizing drug performed worse on a recall task than those that did not take the drug. The subjects who took the drug, however, scored higher in the ability to perceive novel pairs—a task that relied on ‘gut feeling’.

The researchers hypothesize that two different brain systems are at work in learning: one is an explicit system based on recall and reasoning; the other, an implicit system based upon the brain’s reward system. By dampening the explicit learning system, the tranquillizing drug provided subjects with greater access to their gut.

I am no PhD but my simple mind can translate this into the notion that trading is both science and art, either as separate but necessary entities or possibly a synthesis of both. The explicit mind is the reasoning scientist and the implicit mind is the artist on drugs (so to speak). But the artist is the intuitive thinker that is rarely heard because the scientist commands the attention with attractive solutions and demands decisions be made with quantitative data. For the investor, the scientist often speaks louder than the artist.

An Intuitive Summary of Intuition?

And now we arrive at a difficult juncture—how to end this blog post. If I provide more supportive data and a definitive solution, the scientist will ironically crowd out the artist. So after my own scientific research for this particular blog post ended, I did my best to stop thinking about finding a solution. This way perhaps my intuitive mind could fittingly end a blog post about intuition!

So I looked outside of a window near my desk and began watching the colored leaves of a white oak tree slowly fall to the ground. After following one particular leaf complete its descent from beginning to end, my eyes met a pair of squirrels engaging in their hurried late-Autumn activity and, as I began to find myself amused by their…. Aha! My mind was empty and quiet. Or as a scientist might note: the explicit learning system was dampened; access to the gut feeling was enabled; and this nugget of wisdom popped into my mind:

“Freedom from the desire for an answer is essential to the understanding of a problem.” ~ Jiddu Krishnamurti

I am guessing I recalled this piece of useful wisdom because I had stopped the hyper-intentional activity of searching, which presumably awakened the artist needed to finish this post. If there is a way to use this intuitive thinking for investing, or for any other endeavor for that matter, it will not likely come to you by calling upon it.

Instead, try doing your research and analysis first to satisfy your inner scientist. When the analytical work is done, leave it alone for a while and try doing something completely different than investment research before making a decision. Perhaps you could take a walk, read a book, listen to music, meditate or even take a nap. You may be surprised at how productive ideas can come to you because you were not looking for them.

This is the art of intuition that can follow the science of discovery….

What are your thoughts on intuition? How often do your intuitive ideas come to you and how accurate are they? Have you ever ignored a “gut feeling” and regretted it later? How do you balance or combine the science and art of investing?

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Kent Thune is blog author of The Financial Philosopher [3]. You can follow him on Twitter @TheThinkersQuill [4].


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2013/11/art-of-intuition-science-of-discovery/

URLs in this post:

[1] The Role of Intuition in Trading Decisions: http://traderfeed.blogspot.com/2010/02/role-of-intuition-in-trading-decisions.html

[2] An interesting research study: http://bps-research-digest.blogspot.com/2006/08/intuition-enhanced-by-drug.html

[3] The Financial Philosopher: http://www.thefinancialphilosopher.com/

[4] @TheThinkersQuill: https://twitter.com/ThinkersQuill

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