In my previous post, I talked about how to deploy the power of Black Hat thinking to avoid making costly blunders when making a decision. Now, I will look at Red Hat thinking. This thinking hat considers the role of feelings and intuition.
Move Over Left Brain
The three styles that I discussed earlier were left brain strategies. This new one is a right brain strategy. While White Hat thinking is all about discerning facts, Yellow Hat thinking about seeking value, and Black Hat thinking about anticipating danger, Red Hat thinking departs from an objective, analytical, and logical approach. Instead, it looks at things from a subjective, reflective, and intuitive angle.
Red Hat Thinking Examples
As a chess player, Red Hat thinking will give you a sudden understanding of the board, an “aha” moment when you suddenly see a whole new configuration of possibilities. Perhaps you suddenly see that a queen attack on your opponent’s rook will force the king to kill the queen, putting the king on a square where a combined rook-and bishop attack will trap him. You did not see this before because you were playing logically and valued your queen—but now you unexpectedly see that a queen sacrifice will give you a position that will allow two dormant pieces to act with lethal precision.
Additionally, Red Hat thinking might make you feel either excited or frightened, which might influence you to make the wrong move. Feelings have to be taken into account in your decision making. As an investor, Red Hat thinking may prompt you to act on feelings and intuitions rather than reason. When Conrad Hilton bought a prestigious Chicago hotel, he did it on the basis of intuition. The sale of the Stevens House was based on sealed bids. After turning in his sealed bid for the Stevens House, he went to bed but tossed and turned all night. The next morning, he changed his bid from $165,000 to $180,000. He won the bid by a mere $200 over the next highest bidder. He paid an extra $15,000 beyond his carefully calculated valuation because it just felt right!
Alternatively, an investor may either want to buy or sell based on a feeling of excitement or apprehension—and these feelings have to be taken into account when making a decision. These feelings may or may not be an accurate reading of the situation.
Red Hat thinking is similar to the idea of behavioral finance. Sometimes our emotions sway our decision. While it should not be relied on as the only way to make a decision, feelings and intuition do play a role in decision-making and we cannot afford to ignore them. Ideally an investor should temper Red Hat thinking with due diligence and working within an overall plan. There are two more hats to go in this series. Visit us again to learn how to use all six hats in your investments.