Desilutions of succes

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www.hbr.org

Delusions of
Success
How Optimism Undermines
Executives’ Decisions by Dan Lovallo and Daniel Kahneman

Included with this full-text Harvard Business Review article:
1

Article Summary
The Idea in Brief—the core idea
The Idea in Practice—putting the idea to work

2

Delusions of Success

10

Further Reading
A list of related material, with annotations to guide further exploration of the article’s ideas and applications

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Delusions of Success
How Optimism Undermines Executives’ Decisions

The Idea in Brief

The Idea in Practice

Three-quarters of business initiatives flounder—new manufacturing plants close prematurely, mergers and acquisitions don’t pay off, start-ups fail to gain market share.
Why? Delusional optimism: We overemphasize projects’ potential benefits and underestimate likely costs, spinning success scenarios while ignoring the possibility of mistakes. The culprits? Cognitive biases and organizational pressures to accentuate the positive. We can’t eradicate either, but we can take a more objective view of an initiative’s likely outcome. How? Reference forecasting: comparing a project’s potential outcomes with those of similar, past projects— to produce more accurate predictions.

ROSE-COLORED GLASSES

THE OUTSIDE VIEW

We’re subject to numerous cognitive biases:

How to counteract cognitive biases and organizational pressures? Awareness and a more objective forecasting method—especially with never-before-attempted initiatives. These steps can give us an “outside view” to augment our intuitive “inside view”:

Anchoring.
Competing for limited funding, we create project proposals accentuating the positive.
These initial forecasts skew subsequent analyses of market and financial information toward overoptimism: We don’t adjust our original estimates enough to account for inevitable problems.

Competitor neglect.
We ignore competitors’