Delusions of Success: Comment on Dan Lovallo and Daniel Kahneman

Futures, 2004

This paper defines foresight as being a mental model about the future and considers the role of foresight in shaping actions and events reflected in imperious, heroic, tragic and chaotic futures (defined within the paper). The paper contends that success in foresight is not about acquiring knowledge or using it to build pictures about the future. Rather, it is the expectations that come with such processes that cause organisational closure, and thus chaotic and tragic futures. The argument is made that firms need to doubt much more than they do.

Journal of Forecasting, 1987

In attempting to improve forecasting, many facets of the forecasting process may be addressed including techniques, psychological factors, and organizational factors. This research examines whether a robust psychological bias (anchoring and adjustment) can he observed in a set of organizationally-produced forecasts. Rather than a simple consistent bias, biases were found to vary across organizations and items being forecast. Such bias patterns suggest that organizational factors may be important in determining the biases found in organizationally-produced forecasts, KEY WORDS Forecasting-organisational Behavioural decision-theory Anchoring Adjustment

planning approaches and adaptive approaches. These differ primarily on the appropriate role of prediction in the decision process. Prediction is a central issue in strategy making owing to the presumption that what can be predicted can be controlled. In this paper we argue for the independence of prediction and control. This implies that the pursuit of successful outcomes can occur through control-oriented approaches that may essentially be non-predictive. We further develop and highlight control-oriented approaches with particular emphasis on the question of what organizations should do next. We also explore how these approaches may impact the costs and risks of firm strategies as well as the firm's continual efforts to innovate.

Journal of Business Venturing, 2010

This article outlines why highly confident entrepreneurs of focal ventures are better positioned to start and succeed with another venture; and therefore why overconfidence in one's capabilities functionally persists and pervades amongst entrepreneurs. By combining cognitive perspectives on confidence in decision making with Fredrickson's . What good are positive emotions?. Review of General Psychology, 2, 300-319.; Fredrickson, B.L. 2001. The role of positive emotions in positive psychology: the broaden-and-build theory of positive emotions. American Psychologist, 56, 218-226.; Fredrickson, B.L. 2003. The value of positive emotions. American Scientist, 91: 330-335] 'broaden-and-build' theory of positive emotions, this paper elaborates the manner in which such entrepreneurs can develop emotional, cognitive, social and financial resilience that can be marshaled and mobilized for a subsequent venture.

Purpose Unrealistic optimism is all around us, and it is a well-documented psychological phenomenon. The purpose of this study is to take a critical approach of the main research done in the area and to analyze the important impact that it has in many economic and managerial contexts. We also analyze current trends in terms of entrepreneurship by policy makers. Findings We show that most people are prone to groundless optimism when faced with economic and managerial decisions and yet economists, managers and policy makers still ignore it or fail to understand its characteristics. Implications Since the policy and welfare implications of such a (neglected) widespread phenomenon are vast, we challenge the current public policy trend of extending lending to business start-ups, on the grounds that it may create a real road to ruin. Originality/value A careful analysis of the psychology of over-optimism from an economics and managerial perspective is original and extremely valuable in a world where uncertainty dominates. Methodology/approach Critical review of the existing literature on unrealistic optimism and its implications for economic and managerial decision making.

2008

Can ‘future-perfect-thinking’ be turned into a management strategy? Can trivial, everyday projects, like getting a letter to a friend, serve as model for huge, complex construction projects? These questions were made current when Clegg et al (2003) created a bridge between Alfred Schutz and project management theory. In this paper we revisit this bridge to determine if it takes us the right places. The bridge is founded on the idea that human action is devised from an anticipation of a future state of affairs affected by the action. Thinking in the future perfect tense, the actor projects such effects into the future, and imagining them already accomplished the actor may reconstruct in mind the necessary steps in getting there as a guide to current action. Turning future perfect thinking into a project management strategy implies a constant revisiting and reinforcement of the projections. It builds of the presumption that success is more likely if participants in the project agree a...

European Planning Studies, 2008

The American Planning Association recently endorsed a new forecasting method called reference class forecasting, which is based on theories of planning and decision-making that won the 2002 Nobel prize in economics. This paper details the method and describes the first instance of reference class forecasting in planning practice. First, the paper documents that inaccurate projections of costs, demand, and other impacts of plans are a major problem in planning. Second, the paper explains inaccuracy in terms of optimism bias and strategic misrepresentation. Third, the theoretical basis is presented for reference class forecasting, which achieves accuracy in projections by basing them on actual performance in a reference class of comparable actions and thereby bypassing both optimism bias and strategic misrepresentation. Fourth, the paper presents the first case of practical reference class forecasting, which concerns cost projections for planning of large transportation infrastructure investments in the UK, including the Edinburgh Tram and London's £15 billion Crossrail project. Finally, potentials for and barriers to reference class forecasting are assessed.

Is the imprecision of economic forecasts due to the judgments of ‘biased’ decision makers? This study explores decision-making among expert forecasters in Sweden using semi-structured interviews. The results indicate that forecasters’ decision processes are characterized by intuitive as well as calculating reasoning, gradually adopting mental models and conflicting goals. While forecasters make judgments that are non-optimal in terms of minimizing forecasting errors, these are not necessarily biased but can be described as ecologically rational decisions. The results indicate that behavioral forecasting research would benefit from taking into account the specific decision-making environment in which forecasters operate.

foresight, 2006

This paper presents an analysis of entrepreneurial activities that emphasises anticipation and the art of future exploration; in so doing, it identifies important aspects of entrepreneurship as aesthetic or poetic activities. Approach After a short synthesis of the main entrepreneurial functions in terms of decision-making in the financial sphere, the managerial sphere, and the 'booster' sphere, the paper concentrates on the qualities required for a successful 'booster' function (motivation, ambition, innovation, cooperation, proactiveness). Because proactiveness and innovation both require futures thinking and creativity, the paper presents relevant material from the literature on long-term forecasting to establish the artistic aspects of these important components of entrepreneurial activities. Findings The paper's linking of entrepreneurial functions to the capacity for anticipation establishes the need for entrepreneurs to acquire competencies (in the area of forecasting) that are usually associated with artistic endeavours-endeavours that require aesthetics and, ultimately, a poetic sense. Implications

Social Science Research Network, 2011

We examine the relationship between Machiavellianism and overconfidence. Participants were invited to take part in a real-world prediction task: forecasting the outcomes of the 2010 FIFA World Cup. In Studies 1 and 2, participants gave probabilistic forecasts for the outcomes of the tournament, completed a measure of Machiavellianism, and also estimated their relative performance. We found that Machiavellians expected themselves to outperform others to a greater extent than non-Machiavellians. However, they actually performed worse. In Study 3, participants played a betting task. Again, we found that Machiavellians tended to earn less. Further, across all three studies, Machiavellians tended to use probabilities that deviated more extremely from the base-rates. Hence, by all measures, they were more overconfident. This research contributes to the link of one of the constituents of the "dark triad" with overconfidence.