Kahneman & Lovallo: Delusions of Success: How Optimism Undermines Executives' Decisions

Introduction (Via Kahneman & Lovallo HBS)

For most of us, the tendency toward optimism is unavoidable. And it’s unlikely that companies can, or would even want to, remove the organizational pressures that promote optimism. Still, optimism can, and should, be tempered. Simply understanding the sources of overoptimism can help planners challenge assumptions, bring in alternative perspectives, and in general take a balanced view of the future.

But there’s also a more formal way to improve the reliability of forecasts. Companies can introduce into their planning processes an objective forecasting method that counteracts the personal and organizational sources of optimism. We’ll begin our exploration of this approach with an anecdote that illustrates both the traditional mode of forecasting and the suggested alternative.

In 1976, one of us was involved in a project to develop a curriculum for a new subject area for high schools in Israel. The project was conducted by a small team of academics and teachers. When the team had been operating for about a year and had some significant achievements under its belt, its discussions turned to the question of how long the project would take. Everyone on the team was asked to write on a slip of paper the number of months that would be needed to finish the project—defined as having a complete report ready for submission to the Ministry of Education. The estimates ranged from eighteen to thirty months.

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26. July 2010 by Miguel Barbosa
Categories: Behavioral Economics, Curated Readings | Leave a comment

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