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Behavioral Economics (BE), a mash-up of psychology and economics, originally interested me because it promised a way to understand and predict mistakes that people make.<\/strong> This helped me do a better job as a banker to governments and nonprofits, because I could help them (and me) avoid those mistakes.\u00a0It took a while for me to learn about the more optimistic, glass half-full, side of BE: under certain circumstances, experts can be very good at using intuitions and experience to make the decisions that matter<\/a>.\u00a0With the right kind of education and training and in the right contexts, we can all make excellent decisions most of the time<\/a>. If I want to make better decisions myself and help others do the same, I need a way to synthesize these two perspectives and use the right approach for each decision.<\/p>\n

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So, let’s start with the half-empty view of human rationality.<\/strong> Kahneman and Klein’s excellent 2009 paper,\u00a0Conditions for intuitive expertise: A failure to disagree<\/a> gets us started They explain how the\u00a0“Heuristics and Biases (HB)” perspective “favors a skeptical attitude towards expertise and human judgment.” Humans are inconsistent, too often making different decisions even when the facts are similar, based on unrelated factors<\/a>. Our present-bias, \u00a0loss aversion, overconfidence and hundreds of other biases<\/a> can explain everything from investment underperformance<\/a>, under-saving for retirement <\/a>and high obesity to poor voter turnout and much, much more. It also offers surprising, optical illusion-like puzzles\u00a0(What do you mean\u00a0Linda may not be a feminist<\/span><\/a>?!)<\/p>\n

Mr. Thaler proposes as a solution an oxymoronic\u00a0“libertarian paternalism<\/span><\/a>” that has governments, companies and the academic \u00e9lite designing behavioral interventions “nudges<\/span><\/a>” to get people to save, donate their organs and spend more at the store. We may also need to have algorithms make decisions for us<\/a> that are consistent, fair and evidence-based. At the very least, we need to slow down<\/a> and make more decisions deliberatively.<\/p>\n

The half-full, “Naturalistic Decision Making” view admires how “intuitive judgments can arise from genuine skill”.<\/b>\u00a0 Gerd Gigerenzer’s\u00a0Risk Savvy<\/a> argues that people are essentially good at decision-making;\u00a0they just need better education in how to think about and manage risk. Gary Klein in Sources of Power<\/a> offers many examples of experienced decision makers, relying solely on experience, hunches and heuristics make fast, often brilliant decisions under stress, saving lives in the process. (Here, in the hands of experts, heuristics are effective tools, not biased and error-prone as in HB above.)<\/p>\n

Perhaps we underestimate the power of intuition. Unless you\u2019re a casino operator, physicist (in the age of Newton) or a computer program, the world is inherently messy, complex and chaotic. This means there are diminishing and maybe even negative returns<\/a> to researching, analyzing, calculating and deliberating a decision because the best choice just isn\u2019t knowable. Under certain conditions, intuition may well be the best tool for the job.<\/p>\n

Happily, the two authors of the paper cited above agree there are circumstances under which expert intuition is a legitimate way to make decisions:<\/p>\n