Intuition and Professional Competence: Intuitive Versus Rational Forecasting of the Stock Market

Abstract

This article argues that intuition is a crucial component of professional competence, and provides empirical evidence to support this claim. It was found that in most cases intuitive predictions of stock market development are better than rationally justified ones and that experts predict more precisely than novices on a descriptive data level. The discussion links these findings to the literature about expertise and intuition. Research on professional expertise theoretically indicates intuition as a crucial component of that expertise. This article focuses on the exercise of intuition in the domain of investment. Stock market investment decisions rely on forecasts of market development. As complete information is not available, entirely rational decisions cannot be made, and it becomes necessary to rely on intuition. An overview of theories on intuition are presented followed by discussion of an empirical study in which 32 persons of varying experience in the stock market used intuition as well as rational justifications to predict stock rates.

Understanding adults’ strong problem-solving skills based on PIAAC

“…Recently, Harteis and Billett (2013) argued that although intuitive problem-solving in technology-rich environments (TREs) is not recognised in the same way as it is in different professions, it is an important ability being utilised across all forms of work requiring instantaneous decision making (see also Harteis and Gruber, 2008 Previously, the problem has been that no accurate international large-scale data have been available with respect to adults' key information-processing skills. The data from the Programme for the International Assessment of Adult Competencies (PIAAC) from the Organisation for Economic Co-operation and Development (OECD) comprise the most comprehensive source of information of adult skills ever undertaken.…”

Evaluating the predictive accuracy of microloan officers’ subjective judgment

“…In this second area, intuition may permit heuristics to be rapidly deployed and likely arises through tacit knowledge 2 developed during learning (Harteis & Gruber, 2008). Tacit knowledge or "silent knowledge" concerns interpersonal relationships skills and includes the use of intuition, feelings and emotional intelligence that are not so easily expressed but may be demonstrated as skills and competences.…”

“…The cognitive process and learning from experience played a major role in judgment and decision performance. In the last 25 years, large literature investigated the effect of forecaster expertise on predictive accuracy and found that experts gave better prediction accuracy than novices (Harteis & Gruber, 2008;List, 2003;Muradoglu & Onkal, 1994) because experience helps investors reduce certain behavioral biases through learning (Gervais & Odean, 2001). However, others studies (Einhorn & Hogarth, 1978;Heaton, 2002) concluded that learning from experience eliminate behavior biases only with similar and repetitive task.…”

Lending decision making in banks: A critical incident study of loan officers

“…In a similar study, Harteis and Gruber (2008) conclude that both induced information processing (intuitive or rational) and expertise (years of experience with the stock market) influenced the accuracy of stock price predictions. Individuals induced with an intuitive information processing style were more accurate than individuals induced with a rational information processing style.…”