Don’t Trust Your Gut summary

When it comes to making important decisions, we’re often told to “go with our gut.” But that might not be the best advice. Contrary to popular opinion, you can’t always trust your gut. In fact, every decision you make based on gut feeling could be costing you – big time.

The best way to make effective decisions isn’t to follow your instincts; instead, you’re better off basing your decision-making process on data.

That’s right, data. Thanks to the internet, we have huge stores of data, from Wikipedia profiles to Facebook relationship status updates, at our fingertips. Advances in data analysis techniques mean it’s easier than ever to generate insights from these enormous data sets. Whatever your dilemma – whether you’re weighing up proposing to your partner or wondering about moving to a new city – odds are that some enthusiastic data scientist has crunched the numbers and generated findings that can help you make the right decision. And, when you look at the data for yourself, you might be surprised to find that your gut feeling was actually way off base.

Don’t believe me? From pro baseball to Wall Street, data analysis has underpinned a lot of winning decisions.

The Oakland A’s had one of the lowest payrolls in the league when they reached the playoffs in 2002 and 2003. Rather than trying to draft star players with high batting averages, manager Billy Beane looked at the data. The data showed that other metrics, such as time spent on-base or slugging average, were both better predictors of match success than batting average and undervalued by the market. With these insights, Beane was able to assemble a first-class team with a comparatively low budget.

In Silicon Valley, data is king. One Google designer quit the company over a dispute about which shade of blue to use in an ad link. The designer wanted to go with their intuition, choosing a shade that fit their design sensibilities. The data showed a different shade would lead to a higher click conversion rate. And guess what? Conversion metrics prove Google was right to trust their data over their designer.

Renaissance Technologies is one of the most prestigious, not to mention profitable, hedge funds on Wall Street. Founder James Simon started the company with something more valuable than seed money: he purchased a huge set of raw financial data. Simon, and a team of expert mathematicians, mined the dataset for patterns and trends. Now, every trade Renaissance makes is data-driven. And, in the years since its founding, Renaissance has delivered a 66 percent return since it was founded – pretty impressive, when you consider the S&P 500 delivered a 10 percent return in that same time period.

Ready to ignore your gut? The next four chapters will show you how to make better decisions with data.