Intuition plays a major role in the decision making process of most stock brokers and traders, according to a University of Queensland researcher.
Peter Noordink, a PhD candidate in UQ’s School of Business, interviewed 27 expert traders and found that 40 per cent of decisions made by stock brokers were based on “gut feelings”.
“One floor trader told me that when traders are on the exchange floor they have about three seconds to make a major decision,” Mr Noordink said.
“They don’t have enough time to be rational; they can do that kind of analysis before the trade.
“But when you are in the thick of making decisions you have to do it based on your intuition.”
Mr Noordink compared the decisions made by stock brokers and traders to that of crossing a road.
“Do you calculate distances or speeds of vehicles before you cross the road, or do you simply ‘feel’ whether it is okay to cross? Most people use the second, and make it across 99.9 per cent of the time,” he said.
Mr Noordink said intuition was connecting your own expertise with a sort of “collective consciousness in a discipline area”.
“To make these kinds of decisions you need to be well grounded in a deep feeling and understanding for that area,” he said.
Currently Mr Noordink is investigating the accuracy of both intuitive and analytical decisions through a web-based questionnaire of 125 financial traders.
He said current research had shown that although intuition was important, 60 per cent of decisions were still based on rational analysis.
But Mr Noordink said much previous research on rational decision-making was flawed because it used students, who do not represent real-world settings and naturalistic decision making.
He also noted that previous research had concentrated on rational analysis because the industry believed that “you have to be rational 100 per cent of the time”.
Mr Noordink said decision making was an emotional process and people need to be aware of their emotions, such as confidence and stress, when they are making decisions.
“It has been found that people experiencing negative emotions, like stress, tend to use more analysis than intuition,” he said.
“But in the end, your gut feeling will help you to know when it is best to use more analysis, and when you can use non-rational methods to make a decision.”
Media: For more information, contact Peter Noordink (telephone 3346 9326, email p.noordink@business.uq.edu.au) or David Ashkanasy at UQ Communications (telephone 3365 9723, email d.ashkanasy@uq.edu.au).
