Intuition as an alternative mode of thought - Experience can help with some decision tasks

Should investors use intuition? As an alternative mode of thought, the answer is yes. As defined by Robin Hogarth, the expert in decision sciences, "Intuition or intuitive responses are reached with little apparent effort, and typically without conscious awareness. They involve little or no conscious deliberations."

Investors should always prefer conscious deliberations and awareness, but there are periods when decisions are time sensitive, require quick action, or are repetitive enough to be done without deep deliberation. There is a place for using intuition as long as it is based on focused skill and experience.  

There are different modes of thought for information processing that can be learned to help investors. Facing a significant flow of constant information, investor require different levels of attention and processing. All decisions do not require deep analysis. Modes of thought can range between intuition, a tacit process, and analysis which is focused and deliberate. The investor needs to choose a mode of thought based on its speed, accuracy and the amount of effort required. 

Learning through experience works to support intuition. An experienced trader may use intuition while a novice trader will require more work because he does not have the experience of facing the same task repeatedly. However, the intuitive trader with experience may only be good at these decisions and not others where he has less experience. 

Learning is based on context, knowledge of the specific world that requires a decision, and rules, the process of how to do things. Intuition uses tacit or implicit knowledge which is the ability to understand after repeated exposure how certain phenomena work even if the action cannot be explicitly verbalized. The great pool player has implicit knowledge about how to shoot even if he cannot verbalize the physics. The trend-follower who is just looking to find market direction is using a systematic intuition. 

The problem faced by the intuitive trader is that the learning environment is not always friendly. There is not always a strong link between action and response. This poor learning link environment is called a "wicked" environment as opposed to a "kind" environment. See "Kind" versus "wicked" learning environment - Financial markets are not kind.

Intuition can be rules-based and does not mean action without thought. Some will argue intuition will be filled with biases, but that argument does not account for the learning and experience that is required for good intuition. 

The intuitive trader develops habits that resemble the scientific method. There is observation, speculation, testing, and generalization, but it is done through repetition from experience and not as a conscious effort planned in advance. See The OODA loop - A simple approach for how traders should behave. The good intuition we are discussing is not associated with feelings or emotions. In fact, the good intuitive trader will be unemotional about what needs to be done. The intuition we are focusing on is a form of expertise which can be developed through direct feedback for specific tasks in a controlled environment which has circuit breakers to minimize the cost of mistakes.