Question

Can you let data replace intuition in decision making?

There is a human factor in almost every aspect of decision making. We have been focusing a lot on how data can help us form an opinion, explore the situation (all the work we did before regression), and make predictions (all the regression work).

Given that you know that regression has its shortcomings,discuss the situations in which

(i) intuition replaced data

(ii) data replaced intuition

(iii) intuition is laid on top of data (a combination approach)

Threaded replies only. Once a student has taken one of these three stands, please reply to that stand.

Research the situations well. This could be a way to think about your final projects.

Answer 1

(i) The process or mechanism of decision-making and rational prediction or forecasting in any particular discipline or field involves uncertainty and lack of any concrete assurance. This is one of common features or components of any decision-making process which essentially necessitates the utilization of data, facts, information, and rational judgment based on effective intuition and discretion. However, in many instances, considering the practical and statistical limitations of the empirical estimation methods and procedures such as regression analysis, it becomes essential to primarily rely on personal judgment, intuition, and experience. For example, the management or administration of any business organization or company is considering to launch a new product or service in the market, it can conduct a thorough and intensive market research to estimate or examine the factors or attributes that can affect or influence the consumer preference or demand for the concerned new product or service. Nonetheless, there is a substantial uncertainty regarding the potential commercial success of the new product or service despite a detailed and comprehensive empirical estimation or analysis of consumer preference and demand. In such circumstances or scenarios, the organization or company management or administration has to use reasonable intuitive speculations or assumptions based on previous experiences and commercial performance of the organization or company. In this context, the management can mostly rely on the commercial performance of the previously launched products or services, managerial experience, personal gut feeling, discretionary considerations, and so on which can be incorporated into the decision-making process and mechanism.

(ii) Now, in many situations empirical estimations or analysis of actual data or facts become important and are more preferred compared to personal intuition or discretion. For example, formulation and determination of public policies by the government both at the federal and the state level require proper and official data collection and analysis as it essentially involves the overall welfare and development of the entire society encompassing various economic classes, social castes or creeds, religious groups, etc. In such situations, the government officials or public policymakers cannot practically just rely on personal rationale or intuition as the issues and considerations pertaining to the public policies are extremely broad, holistic, and complex and is concerned with the welfare and progress of the entire nation. Therefore, a comprehensive data and facts regarding public behavior and consciousness towards any broader social and economic change need to be efficiently collected and analyzed comprehensively to construct an effective and fruitful public policy at a general level.

(iii) Under many situations or circumstances, combination of both empirical data analysis and personal intuition or discretion can facilitate the decision-making process or mechanism. For example, in the case of financial investments such as stocks or shares, the individual investors have to collect data on the previous trends or fluctuations in the concerned stock or share prices under different contingencies and carefully study the same to minimize the investment risks. At the same, the investor or the speculator needs to hedge the financial investment in order to minimize the risk of financial loss from the investment which is majorly based on personal discretion and judgment regarding financial risk assessment and minimization. Now, much of the personal intution or discretion regarding financial hedging can be practically based on the empirical estimation or the data regarding the previous trends and fluctuations of the concerned stock or share prices to undertake a rationally optimal and viable investment decision which would minimize the investment risks to the maximum possible extent given the various concerned contingencies and uncertainties.