David Emanuel Andersson

Gut Feeling February 22, 2009

While looking for a book to read in a bookstore three weeks ago I chose the book “Gut Feeling” by Gerd Gigerenzer, because the name seemed vaguely familiar. The funny thing is that Gigerenzer explained why I had chosen his book: my choice made use of the recognition heuristic that is one of the most important ways by which people choose.

As it turned out, Gigerenzer is an experimental cognitive psychologist, and his book is well worth reading. The main conclusion of the book is that humans mainly rely on three ways of reaching decisions: gut feelings, the recognition heuristic, and lexicographic preferences. What they do not generally rely on is expected utility maximization.

Personally, I found the book encouraging, since I have argued in favor of lexicographic preferences over expected utility maximization in “Property Rights, Consumption, and the Market Process.” My argument there was based on non-mainstream economic theories as well as introspection. But it seems that psychological experiments support these theories as being more realistic than those of mainstream economics. I didn’t know this. Even the recognition heuristic can be seen as a lexicographic preference in the sense that it is the tiebreaker when the choosing individual knows next to nothing about the feasible choices.

A gut feeling is slightly different: it refers to the utilization of tacit knowledge and allows for much quicker decisions than when the decision maker evaluates a list of  pros and cons with attached probabilities. The interesting thing is that a gut feeling tends to perform better than careful choices, as long as the decision maker has a lot of relevant experience. There might be an interesting connection between entrepreneurial alertness or judgment and gut feelings (I’m not sure about this, but for some reason entrepreneurship was my gut feeling when I read Gigerenzer’s account of gut feelings).

All in all, I think “Gut Feeling” is a very interesting and rewarding book. It is both profound and accessible. I get the impression that the author must be a brilliant lecturer (I could of course be wrong; some people write much better than they speak). I especially recommend the book to complacent mainstream economists.