Bias # 3 – Optimism Bias – We think we are better than we are
Many people think optimism bias may be the most important bias of them all. At its essence, optimism bias is the sense we’re better than we really are. It’s also called “the Lake Wobegon effect” of Garrison Keillor fame: “Welcome to Lake Wobegon, where all the women are strong, all the men are good-looking, and all the children are above average.”
Because of optimism bias, we tend to focus on ourselves and neglect the effect of luck and competition. We mistakenly think our success is in our own hands, that we are the masters of our own destiny. What is really the case though is much of our success or failure depends on the acts of others. In reality, many outcomes depend as much or more on competition and changes in the marketplace as they do our own efforts.
Whenever you take on significant risk, optimism bias is at work. It’s likely that you might not invest the time to think through the odds very clearly and when you do, you might underestimate them. When you do look for evidence you probably only look at the things that agree with your thesis and ignore what’s contradictory. Misreading the risk, you might think you are being prudent when in fact you are being ignorant.
But optimism bias is both good and bad. On one hand, when chasing a deal, we systematically underestimate the risks and the odds against us. And, because we misread risks, we often believe we are being prudent when, often, we are being reckless. On the other hand, confidence in our own abilities helps us garner resources and funding, helps us motivate our people and can significantly enhance our chances of success.
We have these suggestions when dealing with optimism bias:
- It‘s important to know that optimism bias leads to competition neglect so, it‘s important not to underestimate your competition. We all know it’s vitally important to talk to prospects, but it’s equally important to research and talk to the customers of our competitors. You must constantly ask yourself this question: Considering who our competition is, and their history of products and services, what is our best course of action?
- Borrow a technique from project management, once your plan to close the deal is done, consider running a “Pre-Mortem” for the deal. A Pre-Mortem involves assembling all involved from the seller’s side and ask this question: Imagine the deal just closed and we didn’t win it. We implemented the plan flawlessly, exactly as we agreed upon and it still failed. Take ten minutes and write a brief history of that disaster.” This exercise is a search for unknown threats and unanticipated consequences. This is hard, but well worth the effort.
- Be especially leery after coming off a big win. That’s when we’re the most susceptible to optimism bias. Thinking we are better than we are we might take shortcuts and the easy way out rather than putting in our normal time and effort.