not even 100% correlation implies causation

About ten years ago, I met an academic who specialised in the application of neuroscience in marketing and, more specifically, advertising. He was using sophisticated technology to track the effects of advertising stimuli on the brain by monitoring the areas of the brain that were activated.

I considered this to be very clever and very useful science, so I asked him who his clients were. He responded by showing me a wall of logos – each logo representing a client. They included Coke, AT&T and many other large corporations in the United States. Given the academic was domiciled at a university in Western Australia, I enquired about his local clients. To my surprise, he replied, ‘I will not work with businesses in Western Australia’.

I asked if he meant ‘will not’ or ‘does not’ work with businesses based in Western Australia, to which he responded, ‘will not’. Not surprisingly, I felt compelled to ask why he would not work for local business. His response, while surprising at the time, seems much less surprising today. He simply said that ‘CEOs in WA know everything’.

After further discussion, it became clear that the good professor believed that chief executives and business owners in Western Australia have a greater tendency than most to rely on intuition to make decisions, even when all of the available evidence suggests otherwise. He was of the view that businesspeople in Western Australia think their intuition is more reliable than the evidence gathered by research, regardless of how rigorous that research may be.

Some 30 years of consulting around Australia has taught me that the good professor was both right and wrong. He was right to suggest that CEOs in Western Australia rely unduly on intuition – even if that involves ignoring research. He was wrong to suggest that this phenomenon is unique to CEOs or to businesses in Western Australia.

I have found the undue reliance on intuition to be a national phenomenon. I have also found that the phenomenon is common throughout the broader community, and not just among CEOs. If I had a dollar for every CEO or member of any community in any state of Australia, or any other part of the world I have visited, who has referred to a commercial they have seen and remarked on how good or bad it was without any evidence to back up their assertion – I would be a wealthy man.

It seems that everybody, regardless of their qualifications (or lack thereof), is an expert on education, economics, advertising, and marketing more broadly. I have found that most people in business are heavily reliant on their intuition and are all too ready to act on their intuition in the absence of evidence, often in the face of evidence indicating they are wrong.

I have found this to be particularly so among the owners of small to medium-sized business and even some larger businesses, where their success to date has been due to their entrepreneurial spirit. These are people who need to believe in themselves.

But just how reliable is intuition?

Research by Nobel Prize winner Daniel Kahneman has identified a number of reasons why intuition is unreliable. These include:

• False impressions
• Overconfidence

His research highlighted the prevalence of both.

I question intuition on the following grounds:

• Not knowing whether we have the relevant facts
• Diversity of human behaviour
• Natural biases that develop in all human beings
• Confusion between correlation and causation

While few seem to take this into account in their thinking, not even a 100% correlation implies causation. Unfortunately, human beings seem naturally attracted to aligning correlation and causation, when the truth is, they are very different things.

THOUGHT

Don't rely on intuition without data. Intuition alone is highly unreliable and rarely leads to optimal outcomes. Intuition works best when applied after the collection and consideration of data you have confidence in. It is expensive to be a 'know it all'

John