When to Trust Your Gut: Understanding the Two Crucial Conditions

Can you trust your gut? Well...sometimes. Today on the podcast we look at the two conditions that must be met in order for intuition to be useful. Even the best-informed intuition is only as good as the milieu in which it finds itself and environmental cues remain the best predictor of whether or not intuition can be trusted. In the absence of a certain level of predictability and rapid feedback, neither of which are present in financial markets, intuition lacks soil fertile enough to take root. We have reason to trust the intuition of a NICU nurse, a physicist or a mathematician, but very little reason believe the instincts of a therapist or stock picker (sadly, I am both). Such intuitive shortcomings are not the fault of the experts in question but rather the discipline in which they ply their trade. As Murray Gell-Mann correctly noted, “Imagine how hard physics would be if electrons could think.” Intuition is powerful in many domains but ill suited to the vagaries of allocating capital.