Featured faculty: Andrew Meyer
Written by Sha Miao

“Intuition is a very powerful thing, more powerful than intellect, in my opinion,” said Steve Jobs. Intuition often inspires a multitude of ideas, but creating a tech giant like Jobs did requires more than just instinct. For most of us, simply relying on gut feelings for problem-solving may only work best in movies and novels.

“There’s an idea that we should follow our intuition,” says Andrew Meyer, Research Assistant Professor with the Department of Marketing at the Chinese University of Hong Kong (CUHK) Business School. “Obviously, we need to act and can’t be paralysed by reflection, but the idea that there’s any special insight in whatever first comes to mind is probably wrong.”

Since the 1970s, two world-renowned psychologists, the late Amos Tversky and Daniel Kahneman, have highlighted flawed patterns in decision-making with their theories of cognitive bias. A notable example is their famous Linda problem:

Linda is 31 years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear demonstrations. Which of the following is more likely:

1) Linda is a bank teller; or

2) Linda is a bank teller and is active in the feminist movement.

Most people guess the second option because Linda “seems” like a feminist. However, the likelihood of two events occurring together is always less than or equal to either individual event. Therefore, the first option is more likely. This conjunction fallacy exemplifies how intuition can blind us to logic—a tendency measured by tools like the cognitive reflection test.

More than just a math test

In a recent paper, Professor Meyer worked with Kahneman before the Nobel laureate passed away in 2024 to explore the cognitive reflection test, a seemingly simple test to measure how likely someone is to stop and think before jumping to conclusions.

Unlike standard mathematical tests that simply assess how well individuals can compute or solve equations, the cognitive reflection test has intuitively compelling wrong answers (like Linda seeming like a feminist) that allow it to evaluate “cognitive reflection” – the ability to override an incorrect gut response and reach a correct answer. This ability is crucial in many areas of life, from making better decisions at work, having the patience to wait for larger rewards, and being less prone to fall for misleading information.

“You could think about a distinction between the ability to think and the tendency to think,” says Professor Meyer. “Some people might be very smart but prone to stick with initial intuitions instead of actually thinking. The cognitive reflection test is supposed to measure this latter tendency.”

“The tendency to stop and think is important for avoiding all kinds of traps in daily life, from phishing emails to overly sweet desserts.”

Professor Andrew Meyer

Cognitive reflection is a distinct and measurable trait describes recent research by Professor Meyer along with Kahneman, as well as Shane Frederick of the Yale School of Management, Maya Bar-Hillel of the Hebrew University of Jerusalem, and Yigal Attali of Duolingo. They compared the cognitive reflection test with a standard math test to see which was a better predictor.

In the study, 4,407 participants were recruited from four different online platforms, and each participant was administered an eight-item cognitive reflection test and an eight-item mathematical aptitude test.

The questions in the cognitive reflection test appear simple, like the classic bat and ball problem: A bat and a ball cost $1.10 in total. The bat costs $1.00 more than the ball. How much does the ball cost?

Most people quickly and intuitively guess 10 cents, because 1.10 and 1.00 differ by 0.10, but the correct answer is five cents. On their variant of this problem, only 26 percent of participants answered correctly.

The questions are designed to trick people into relying on gut feelings rather than taking a moment to think it through. However, the items are still math problems, so they test mathematical abilities. In a previous paper, the Bar-Hillel and Attali had argued that that was all these items tested.

Although the standard math test without intuitive lures was better at predicting numeracy skills, the cognitive reflection test was a better predictor of religious and paranormal beliefs, patience, and the ability to tolerate risk. This suggests that the cognitive reflection test measures something unique beyond math skills.

Why reflection matters

The key aspect of the cognitive reflection test is its intuitive lures—easy responses that seem right, but are designed to catch the participants off guard. These layers help distinguish between those who rely on quick, intuitive answers and those who reflect.

“The cognitive reflection test has been shown to correlate with lots of behaviours like investment decisions, belief in God, and work performance,” Professor Meyer says. “If it was just a math test, those relations might mean something very different than if the cognitive reflection test was actually measuring the tendency to question initial intuitions.”

The study also found that those who scored high on the cognitive reflection test are more sceptical of claims that lack evidence, such as paranormal beliefs or verbiage that sounds deep but is meaningless.

Cognitive reflection is a powerful trait that plays a critical role in both the personal and professional realms. Consumers can apply cognitive reflection when choosing between many products to help them think about the long-term benefits and costs. In professional settings, cognitive reflection can lead to better strategic planning and risk management. In personal situations, it can help manage finances better or make better choices about health and education.

The cognitive reflection test is a useful tool for highlighting this trait and identifying people who possess it. It emphasises the importance of thinking about things in a reflective way. “The tendency to stop and think is important for avoiding all kinds of traps in daily life, from phishing emails to overly sweet desserts,” Professor Meyer adds. “Being able to measure it could be useful for large employers.”

The post Trust your mind or follow your gut? first appeared on China Business Knowledge.

As businesses stand cautiously optimistic, what strategies can they employ to navigate challenges and explore opportunities? On the other hand, how can individuals enhance their performances in the workplace? Valuable insights and innovative solutions can be gleaned from our cutting-edge research featured in this year’s top 10 articles.

By China Business Knowledge @ CUHK

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Multinational enterprises’ investments in digital platforms impact their global sales in the fast-paced tech era, yet these platforms are complex and costly. New research offers strategies for companies to optimise their efficiency in boosting international sales.

#2 How lack of clarity fuels team innovation

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In today’s competitive business environment, innovation is an often-heard mantra that eclipses all else. How can companies innovate? New research suggests clear goals can harm, and the answer lies in giving employees the freedom to make decisions.

#3 The perks of having second thoughts

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Have you ever found yourself in a situation where you made a decision that later turned out to be wrong, but you felt stuck and couldn’t change your mind? Well, you’re not alone. A new study delves into the reasons why blindly trusting your gut is not the best approach.

#4 Can passion at work last?

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As literary giant Victor Hugo once lamented, “passion does not endure” in a love letter, the same caveat can be applied in the context of work. However, a recent study suggests that work passion can be cultivated and sustained over time.

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#6 Cultural diversity matters for corporate disclosure

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#8 The story of failed hedging in the nickel crisis

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#10 Love is in the air, so are your credit cards

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The post China Business Knowledge @ CUHK’s Top 10 Articles in 2024 first appeared on China Business Knowledge.

By Putro Harnowo, Senior Content Manager, China Business Knowledge @ CUHK

Have you ever found yourself in a situation where you made a decision that later turned out to be wrong, but you felt stuck and couldn’t change your mind? It’s like when you confidently solve a math problem, only to realise later that you made a mistake. Or perhaps you bought something you didn’t really need, only to regret it later.

Well, you’re not alone. A new study has shown that this is actually quite common. The way our brain makes decisions is more complex than we thought. Take a classic quiz called the “bat and ball problem” below to understand how people make decisions.

A bat and a ball cost US$1.10 in total. The bat costs US$1.00 more than the ball. How much does the ball cost?

A significant number of participants in the study failed to solve the problem, even after getting the hint that the 10 cents was the wrong answer. In another experiment with the same question, the researchers gave the respondents the correct answer, but many were still stuck with their initial responses. And if you’re struggling too, you may find the answer at the end of this article.

The result of the study showed that our first thoughts can be really strong, and it can be hard to change our minds once we have made a decision.

“The biggest takeaway from this research is that initial conclusions can be very sticky, even if they were based on very little thought, and even if there’s simple logic that contradicts them,” says Andrew Meyer, Research Assistant Professor with the Department of Marketing at the Chinese University of Hong Kong (CUHK) Business School.

The study, conducted by Professor Meyer along with Professor Shane Frederick of the Yale School of Management, focused on how our intuition can sometimes lead us astray. So, how can we minimise these misleading hunches?

Two schools of thought

The study titled The formation and revision of intuitions documents Professor Meyer and Professor Frederick’s attempts to investigate methods to encourage reflective thinking and found that incorrect intuition often persists despite an additional reflection. They highlight that sometimes our quick, intuitive thoughts can be tricky, and it’s important to take our time and think things through carefully.

Furthermore, the researchers argue that the human brain has two systems for making decisions: system 1, which is fast and intuitive, and system 2, which is slow and analytical. Unfortunately, system 1 processes often override or corrupt system 2 processes, which means that people often rely on their intuition rather than taking the time to reflect on a problem.

“In other experiments, we told one group of people that a bat cost US$100 and a ball cost US$10, and we asked another group to solve the bat and ball problem for the prices of both objects, which most people said were US$100 and US$10,” says Professor Meyer. “Then, we asked everyone whether the prices differed by US$100.”

In the group that was given both prices, hardly anyone made the mistake of thinking that these two prices differed by US$100. But in the group that generated those two prices themselves, three-quarters went on to try justifying their answers by arguing how they differ by US$100.

“This suggests that once people have made a mistake, later logic that would show it to be a mistake is often corrupted in a way that prevents them from realising their error,” Professor Meyer explains.

“Once people have made a mistake, later logic that would show it to be a mistake is often corrupted in a way that prevents them from realising their error”

Professor Andrew Meyer

“The only way we could stop people from giving the erroneous intuitive response was by changing the question so that the easy calculation no longer led to a plausible answer,” he adds. “One takeaway is to expect lots of errors if there is an easy calculation that leads to a plausible answer.”

Practical implications

Dual system theory suggests that both systems work together to help individuals make decisions and judgments. However, the balance between the two systems can vary depending on the situation and individual differences.

This theory can be applied to various fields, including psychology, neuroscience, economics, and decision-making. It has been used to explain a wide range of phenomena, such as cognitive biases, heuristics, and decision-making errors.

“I would expect a lot of these forces to be particularly powerful in financial decision-making, where there are many potential calculations, and easy ones often lead to wrong answers and bad decisions,” says Professor Meyer.

For instance, if a person borrows US$100 and has to pay back US$10 per month for a year, the total payment would be US$120. Some might think that this is a 20 per cent effective annual interest rate. However, this would only be true if US$120 is paid at the end of the year.

As the borrower has to pay most of it back much earlier, the loan becomes a lot worse than a 20 per cent effective annual rate. Taking into account the impact of compounding – the process of earning interest on the original amount borrowed and the accumulated interest from previous periods – then the effective annual interest rate is actually 41.3 per cent.

“One prediction from the bat and ball research is that people will not only make the initial mistake and think that this monthly instalment plan is a 20 per cent effective annual rate, but persist and continue to make that mistake even if the logic, that the loan is paid back in much less than a year, is made clear to them,” Professor Meyer adds.

Does extra time help?

The researchers believe that solving the bat and ball problem requires deliberate thinking. Those who manage to solve it take much longer time, and solution rates are markedly reduced after imposing time limits or cognitive load. Therefore, in situations where time is limited, the intuitive system may dominate.

“Time pressure greatly reduces bat and ball solution rates, but encouraging people to take extra time has little effect, which is somewhat disappointing” says Professor Meyer.

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Although a previous study suggests that many people can solve the problem intuitively, Professor Meyer is skeptical as the respondents in the previous study answered various modified versions of the problem, and many “intuitive” solutions came from later trials that participants had encountered repeatedly. The researchers believe that it’s crucial to differentiate between intuiting an answer and quickly applying a previously learned solution strategy.

Circling back to solving the ball and bat problem, setting up a simple equation will help. If “x” is the cost of the ball, then the cost of the bat is x + 1 and the total cost is x + (x + 1) = 1.10, or it can be simplified to 2x + 1 = 1.10. After subtraction and division, we get x = 0.05. Therefore, the ball costs US$0.05 or five cents.

The post The perks of having second thoughts first appeared on China Business Knowledge.