Friday, November 11, 2011

Optimism Bias

We consistently face decisions that are, at their core, predictions about future events.  When we are principally involved though, we suffer from an insider status (as per Kahneman in his new book, Thinking, Fast and Slow, link).  In short, we attach much higher probability to our own successful read of the situation, and ultimate completion of a task, than base rates (rates across high numbers of the same situation/task completed by similar folks) would predict.  We consistently under-appreciate other people's experience of an event that we must now navigate and over-estimate our own capacity.    This works in the construction business, where add-ons are common (and I'm here to testify to their existence!), and to the absolutely horribly ability of CFOs at large companies to have any idea what the stock market will do in the future, and for psychoanalysts to help their patients with talk therapy.

Much more of what exists, i.e. how things turn out, is due to luck and chance than it is to our will.  That's not a nice story, but it is an accurate one.

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