Look out for experts who believe they can intuit market cycles, as unlimited faith in intuition is dangerous.
That was one of the warnings of Daniel Kahneman, a Nobel Prize winner in behavioral economics, at a conference in Manhattan on Wednesday.
It is important to know how and when one can rely on intuition, he cautioned.
“People often trust their intuition because sometimes it is the only idea that comes to mind,” he told the World Business Forum. He said some intuition, when backed by substantial history or expertise, can be useful.
“A man married for 30 years can guess his wife’s mood by one word on the telephone or just coming into a room,” he said. But many other apparently intuitive insights are merely guesses, or an anticipation of something we want to happen, but not based on fact, he said.
“Unfortunately, professionals’ intuitions do not all arise from true experience,” Kahneman wrote in one of his books, “Thinking, Fast and Slow.”
The intuition of those in the stock market is also to be questioned because the stock market’s performance “is not regular,” he said.
Indeed, valid intuitions, Kahneman writes, develop “when experts have learned to recognize familiar elements in a new situation and to act in a manner that is appropriate to it.”
Independence and skeptical judgment can be effective in avoiding a rush to what may seem a reasonable outcome, he said.
But “the intuition that something comes to you and you have a great deal of confidence in absolutely does not guarantee success,” he said.