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Lessons from Thinking, Fast & Slow - Premortem

The Outside View that Daniel Kahneman talks about in his book Thinking, Fast & Slow, is a specific remedy to a problem known as the planning fallacy (i.e.) the inability of people to make predictions. The planning fallacy is part of a larger problem of optimism bias. What is optimism bias? Simply put, people are generally more optimistic than they should be. For example, it is well known that most people think they are better than average drivers, an impossibility. It stems from a general dose of overconfidence not warranted by the situation on hand.

The best example of overconfidence is a study that Kahneman cites of CFOs of large corporations. They were asked to estimate the returns of the S&P Index over the following year. The data were collected over a number of years and hence there was ample opportunity to correlate it with the actual performance of the Index in the following year. Any guesses as to this correlation, given that the respondents should have been expected to have special insight in this matter? It was almost exactly zero, slightly less, in fact! And they seemed to have no idea their forecast was that bad.

The CFOs are not an exception, of course. Given that, are there any good ways of overcoming this overconfident optimism? Kahneman cites the work of a friend, Gary Klein, who suggests a remarkably simple but effective procedure called a premortem. Klein proposes that when an organization is on the cusp of making an important decision, it should gather together all the knowledgeable people. They should be asked to imagine that a year has passed, their decision has been shown to be an utter disaster and then they should be asked to briefly explain (write) why it was a disaster. In one simple stroke it masterfully frees everyone who had any concern about the decision to freely mention the concern without fear of offending any sensibilities. And it is a great safeguard against groupthink, a phenomenon to which many firms are susceptible. As Kahneman puts it, the main virtue of the premortem is that it legitimizes doubts.      

Tagged in: Psychology

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