By Fernanda Arreola and David Jaidan
The accessibility of new tools for improving our decision-making based on data seems to be a promising way to gain insights. From the choice of our holiday itinerary to the ranking schools for our next master’s degree, we seem open to the idea that data processing engines like ChatGPT, Gemini, and others, can help us make decisions. But how far are we ready to go?
Decisions that are guided by our intuition
Today, there is an ongoing debate around the question of if AI can replace human intuition. Intuition is “the ability to understand or know something immediately based on feelings rather than facts.” Intuition is something that AI is not since AI today cannot reproduce feelings.
Intuition can play a significant role in decision-making, especially when faced with complex or time-sensitive situations. According to research, up to 85 percent of CEOs make critical decisions using intuition. This intuitive decision-making process involves accessing emotional and sensory information acquired through associated learning and stored in long-term memory, which is then unconsciously applied to form judgments or decisions.
Intuitive decision-making is particularly effective when it draws on our expertise if developed through years of experience in a specific domain.
Intuitive decision-making is particularly effective when it draws on our expertise if developed through years of experience in a specific domain. Phillips, Klein, and Sieck discuss that the key to improving intuitive decision-making skills is to strengthen the knowledge base within one’s job context through deliberate, focused practice. This approach allows individuals to develop what some researchers call “unconscious expertise,” which enables them to quickly recognize patterns and make effective decisions in their area of specialization. The Recognition-Primed Decision (RPD) model developed by Klein suggests that experts make decisions by recognizing patterns from past experiences and quickly simulating how an option would perform.
Intuition is therefore based on a recollection of information stored in our long-term memory, which is influenced by nonrational perceptions including feelings and emotions. Intuition can be thought of as insight that arises spontaneously without conscious reasoning. Research by Dijksterhuis and colleagues in 2006 supported the value of intuition, particularly for complex decisions. Their “deliberation without attention” hypothesis suggested that while conscious thought is beneficial for simple choices, it can be detrimental when dealing with more intricate matters, such as buying a house.
In both residential and commercial real estate, intuition is vital. Imagine walking into a house and immediately feeling that it is where your family should be, the way sunlight lights up the rooms, the laughter you can almost hear in the hallways. Or imagine stepping into a potential store and feeling that this is the perfect spot for your business, already seeing customers being drawn to your door. The decision to buy a new house or invest in a business property is not just a transaction, it is a turning point that can shape our future.
The rise of AI in real estate
Artificial intelligence has made significant inroads into the real estate industry, revolutionizing how properties are valued, marketed, and sold. According to a report by McKinsey, AI has the potential to generate up to $180 billion in revenue for the real estate industry in the future. AI-powered platforms can analyze vast amounts of data, including property characteristics, historical sales data, market trends, and neighborhood information, to provide accurate valuations and personalized recommendations.
For homebuyers and business owners, two features are particularly interesting:
- Personalized Recommendations: By entering your preferences like location, price, and specific amenities, AI creates a list of properties that match what you want, showing you options you might not have thought of.
- Predictive Analytics: AI predicts market trends and property value growth, helping you make financial decisions. It can show which neighborhoods are improving, which could be good for an investment.
But AI has its limits. It cannot understand the emotional feeling of a potential home or the special character of a neighborhood. It might miss things that cannot be measured but still matter for a person’s happiness or a business’s success.
Balancing AI and intuition
AI-powered platforms can analyze vast amounts of data, including property characteristics, historical sales data, market trends, and neighborhood information, to provide accurate valuations and personalized recommendations.
As discussed, AI gives useful data tools, but it cannot replace emotional intelligence, personal connection, and intuition. Our instincts help us feel if a property is right, and our past experiences allow us to envision if a property matches our lifestyle. This is similar to a business location; it is our imagination that will fill the gaps of an empty room with the possibility of making it a showroom for our product or service. Therefore, relying too much on AI might make us miss out on properties that do not fit the algorithm where we have input our basic choices, which in the end is the perfect location when we visit in person and imagine how the attributes can adapt to the real place.
AI hybrid approach
The early conclusion is that, for real estate, AI is far from being capable of overtaking humans for decision-making. But it can make our choices more powerful if we put together a hybrid approach that makes the best of both worlds interact. In the context of real estate, this hybrid approach could involve:
- Using AI tools for initial property screening and market analysis.
- Leveraging intuition during property visits.
- Using AI to tune up the final criteria for the search, being able for instance, to compare rationally five different property runner-ups.
- Consulting with human real estate professionals who can provide local expertise and emotional support throughout the process.
- Making sure we consider the emotional and logical options and their impact on biases; this will make a more informed and objective decision.
- Finally, before deciding, we should never assume that the mix of intuition and AI will render the perfect result. Instead, we should understand that every business decision, regardless of how well-informed it is, has risks associated with factors that are outside our control, our current knowledge, and any technological expertise.
Considering this final point, acknowledging the potential risks is crucial for real estate and business decisions. This is because not only ourselves but also AI can carry over biases from its training data, which can lead to inaccurate recommendations, as shown by some well-known examples of algorithm failures. Plus, since AI relies on existing data, it might miss the subtle, changing dynamics within communities. The weak point of AI is that it is fully based on data, and if this data is not precisely updated, it may not match reality. The further this data drifts from what is real, the more likely AI is to make mistakes. This is why safeguards are important, and the best way is to use AI as a tool to help make decisions, being a key principle to remember that AI is there to help us make decisions and not to make them for us.
The future of AI in real estate
For real estate, AI is far from being capable of overtaking humans for decision-making. But it can make our choices more powerful if we put together a hybrid approach that makes the best of both worlds interact.
As the real estate industry continues to evolve, the integration of AI and human intuition presents a powerful combination for homebuyers. Daniel Kahneman, who won a Nobel Prize in economics for his work on human judgment and decision-
making, has proposed that we can mobilize two different thought systems: System 1 is fast and intuitive; System 2 is slower and relies on reasoning. The fast system, he holds, is more prone to error. It has its place: it may increase the chance of survival by enabling us to anticipate serious threats and recognize promising opportunities. But the slower thought system, by engaging critical thinking and analysis, is less susceptible to producing bad decisions. The key contribution of AI is, therefore, to make the second system faster, so that it can match the speed of the intuition-based one, reducing the likelihood of mistakes.
Many people in real estate are still unsure about AI’s impact. Their concerns are understandable, but it is important to remember that AI is always improving. While some may not be convinced now, they might change their minds as the technology gets better.
Conclusion
To conclude, while AI offers data-driven insights and efficiency, human intuition provides the emotional intelligence and contextual understanding necessary for such a significant life decision. By leveraging both AI tools and their instincts, homebuyers and business owners can make more informed and satisfying decisions.
Fernanda Arreola
David Jaidan
