The Intellectual Trap

Anticipating future developments from present circumstances reflects survival instincts. Indeed, evolution always favors those who ‘guess’ well – in the jungle or in business. Unsurprisingly, thinkers have sought to identify and perfect the processes underlying reasoning.

There are three specific types of reasoning or ‘inference’: deduction, induction, and abduction.

Deduction begins with a general rule or axiom and leads to a necessary conclusion. It is the logic of René Descartes: if all industrial companies are cyclical and Company X is an industrial company, then Company X must be cyclical. Deduction offers certainty but only when the premises are sound.

Induction works in the opposite direction. It rises from past observations to a general, albeit provisional and speculative rule. Something which has happened repeatedly in the past can be reasonably assumed, with qualification, to recur in the future under a similar set of circumstances. The financial markets are full of inductions. If short-cycle companies tend to recover six months after the PMIs bottom out, it is reasonable to expect that discrete automation companies will outperform in 2026.

Induction offers a false sense of comfort, as argued by David Hume (1739). Even patterns as seemingly reliable as the daily sunrise come with no perfect guarantee of continuing tomorrow.

Like induction, abduction, articulated by Charles Sanders Peirce, also begins with observations. But instead of deriving patterns, it attempts to explain the present by identifying the most plausible explanation for it, given known facts. Doctors diagnosing symptoms, scientists forming early theories, or investors interpreting a sudden price move all rely on abduction.

Abduction is a natural way for humans to navigate ambiguity. As such, it is the mother of intellectual speculation. Unfortunately, speculation often glorifies the performance of thinking rather than thinking itself. There is a subtle vanity embedded in it as it flatters the intellect.

Unbounded, speculation becomes free-floating theory-crafting. Decision-makers deploy abduction to generate endless, diverging scenarios, as if to illustrate the great (and always unprecedented) uncertainty they face. They wallow in a sea of plausible explanations, without committing to any of them. The output is inertia, as speculation becomes an alibi for delaying decisions, a way to appear thoughtful while avoiding the discomfort of action.

This tendency has a cultural dimension. European business culture, shaped by centuries of philosophical tradition, often takes pride in sophisticated analysis. Yet this approach can become paralyzing, as the Old Continent becomes overwhelmed by the structural angst perfectly expressed by ‘Radiohead’ at London’s O2 arena yesterday evening. 

Pragmatic decision-making, by contrast, focuses on available evidence, tangible next steps, and manageable time horizons. It accepts uncertainty and, after reflection, commits to the best possible explanation as a basis for action. This, to me, remains a US specialty and a US advantage.

I experience this in M&A every day: While Europe indulges intellectual self-satisfaction, the US moves, whether in acquisitions or disposals. Eventually, Europe must revisit its attachment to speculative analysis to gain speed and relevance.