Chapter 5

Should You Be Confident?

Identify the business situations when confidence is critically important, and when it's very dangerous.

Grasp the financial risk of following typical advice to leaders to go forward confidently through learning the dangerous judgment errors associated with such behavior.

Navigate safely through the hidden rocks of confidence-related errors by gaining the techniques needed for you and your organization to address such mistakes.

What's your favorite ice cream flavor? Chocolate? Cookies and cream? Don't tell me it's vanilla!

My favorite flavor is Bangkok Peanut, which combines peanut butter, coconut, honey, and cayenne pepper. Sound unusual? It's one of many unique flavor combinations offered by Jeni's Splendid Ice Creams, a high-end ice cream company in my hometown of Columbus, Ohio (go Bucks!). I'll go ahead and say that its the best ice cream I've ever had in the more than twenty years of traveling to speak and consult across the United States.

In late April 2015, my wife and I went to Jeni's and were quite surprised to find it closed. When we returned home, I looked up what happened. Turns out that listeria, a type of bacteria that causes serious and sometimes fatal illness, was found in a randomly tested pint of Jeni's ice cream, fortunately before it reached customers.

The company took the ethically responsible step of an immediate voluntary recall. Jeni's destroyed more than half a million pounds of ice cream, at a cost of more than $2.5 million. An investigation traced the source of the problem to a pint-filling machine, and Jeni's budgeted $200,000 into preventing a listeria incident in the future.

After a month, the company reopened its scoop shops. My wife and I gladly went to one; I got Bangkok Peanut and my wife got Brambleberry Crisp.

A happy ending? Not exactly.

Less than a week after we got our ice cream, I saw a headline in my local newspaper that Jeni's found listeria in its factory again, and closed its scoop shops as a result. Fortunately, my wife and I did not get sick, nor did anyone else, but the headline was quite a shock to us.

Jeni's reopened its doors again, but we became more cautious and didn't go there for a while. I did some more research on the situation at Jeni's and was sad to find that in eight visits, Food and Drug Administration (FDA) inspectors found problems with cleanliness and pathogen controls. I'll spare you the unpleasant details, but it was more than enough to make my wife and I avoid Jeni's until they fixed these problems.

Now, the FDA is no hero. Plenty of my clients had unfortunate run-ins with government bureaucracies during which inspectors acted too aggressively and hindered the success of promising businesses. Still, in the context of previous health and safety concerns, I decided to rely on the external verification of FDA inspectors as to when it would be safe to have Jeni's ice cream again.

I'm glad I put my trust in them. A series of further FDA inspections again discovered listeria in samples collected from Jeni's in January 2016. They also found that while Jeni's fixed many of the cleanliness and pathogen control issues found by the FDA in April 2015, some remained. Most concerning was that the specific strain of listeria found in January 2016 was the same as the one discovered in April 2015, meaning that the company failed to address the initial infection adequately.

Finally, an inspection by the FDA pronounced Jeni's clear of all issues in June 2017. What a relief! My wife and I celebrated by going back to Jeni's and enjoying our favorites.

As a result of the three separate discoveries of the same strain of listeria and the issues with health and safety standards, the reputation of the company took a big hit. In May 2018, I presented a workshop to an executive peer advisory group in Columbus, Ohio. I asked the business leaders in the audience how they felt about Jeni's. Half said they wouldn't eat there because they associated Jeni's with listeria. That attitude is unfortunate because Jeni's has an extremely high-quality product, and the company initiated intense efforts to address the problem. Still, the stain on its reputation will take some time to fade.

So what happened? Why did Jeni's Splendid Ice Cream fail to perform splendidly on safety and sanitation? How could it open its doors in late May 2015 and shut them again in early June because of another listeria discovery? What about failing to address the same listeria contamination six months later in January 2016?

Confidence Game

The answer is both blindingly simple and stunningly complex: the overconfidence effect, our tendency to feel way too much confidence in our judgments.¹

But wait, aren't leaders supposed to be confident? Absolutely! An attitude of confidence is critical in order to inspire followers to implement a decision made by the leader. Such motivation is a fundamental activity of leaders. Yet, wise leaders who want to protect the bottom line of their company know they need to separate exhibiting confidence during the making of decisions from implementing decisions.

During the decision-making process, it's crucial that you avoid trusting feelings of internal confidence and that you do not show confidence externally, especially if you are in a top leadership position. If you show confidence when you make decisions, it could result in your followers failing to suggest alternative options and simply following your guidance, even if they have good ideas to contribute. The result is a phenomenon known as groupthink, when followers simply back the leader instead of providing healthy alternative perspectives and respectful challenges.² According to extensive research, groupthink is one of the most important factors in major business disasters.

By contrast, once the decision is made, and mechanisms to reassess the decision at a future point are put into place, the best leaders fully commit to implementing the decision. They show confidence and inspire the troops to follow, and put their full efforts into enacting the plan. They give the decision their best shot, knowing they did a thorough job of evaluating the decision and have a process of reevaluating the decision in the future. Wise leaders, thereby, subtly balance humility during the decision-making process with confidence after the decision is made.

Here's the rub: too often, we mistakenly combine external displays of confidence when inspiring others with feeling internally confident in our own judgments. We are all human, and therefore we are fundamentally flawed in our assessments of business reality due to cognitive biases. Leaders are just as flawed as everyone else.

Unfortunately, the need to signal confidence to followers obscures the ability of leaders to see such flaws. Leaders frequently mistake the internal feeling that they experience when showing confidence outwardly—a feeling that has nothing to do with whether they assess reality accurately—with an inflated sense of their skill at parsing fact from fiction and making wise decisions. By listening to their gut, meaning the feelings they experience, rather than evaluating what's going on with their head, leaders often lose their heads—and companies suffer business disasters.

Overconfidence nearly destroyed Jeni's. Its CEO, John Lowe, said in the heat of the crisis that he thought the company wouldn't be able to survive without bankruptcy: “We threaded the needle multiple times to find financing and find backers to keep us afloat during that time.”³

After being founded in 2002, Jeni's grew very quickly because of its truly delicious and delightful product, and a healthy company culture, which Lowe and founder Jeni Britton Bauer instituted. Sadly, its business processes of safety and sanitation did not keep up with its growth.

It's not as though Jeni's lacked warning. FDA inspections discovered serious health and safety problems in 2008. A month before the discovery of listeria in Jeni's ice cream, Blue Bell, the nation's fourth largest ice cream manufacturer, issued a major recall due to a deadly listeria outbreak.

Regrettably, Jeni's failed to do anything in response to the Blue Bell recall, which showed poor judgment and overconfidence in their own processes. That overconfidence was also evident in the health and safety issues revealed by the FDA inspections conducted after the discovery of listeria in Jeni's ice cream in late April 2015. Likewise, excessive confidence was the culprit in the premature reopening of Jeni's in late May, which resulted in another shut down in early June.

Think it's limited to Jeni's? Think again!

M&A fail to increase shareholder value—the essential measure of success for publicly traded companies—surprisingly often: between 70 to 90 percent of the time, according to different studies. Does that concern CEOs? Not much, according to a 2018 survey by Deloitte of merger and acquisition plans by CEOs.⁴

Approximately 68 percent of CEOs surveyed expected the number of deals to increase in the next year, and 63 percent expected deal size to increase compared with the previous year. More than 50 percent of CEOs at publicly traded companies claimed that the large majority of deals their company completed (more than 75 percent) have generated their expected return on investment.

A KPMG study held between 1996 and 1998 found 83 percent of mergers and acquisitions in 700 of the biggest deals failed to add to shareholder value.⁵ However, 82 percent of executives in 107 companies interviewed by KPMG described their deals as successful.

There is very strong evidence, using simple before-and-after numbers, that shows returns for shareholders generally decrease after mergers and acquisitions. So why do these CEOs believe that their companies do so well? For the same reason Jeni's opened its doors way too early in May 2015: overconfidence.

Let's stop talking about CEOs and turn to another group. How about drivers?

Do you consider yourself a below-average driver, in the 1–49 percent range? What about an above-average driver, in the 50–100 percent range? Pick one.

I regularly conduct straw polls on this question in my presentations. About 80 percent of business leaders consider themselves to be above-average drivers. Interestingly, studies show that 93 percent of American college students believe they are above-average drivers as well.⁶

When rating leadership ability, 70 percent of students taking the SAT exams in 1976 rated themselves as above the median. Of the same students, 85 percent rated themselves higher than the median in regards to getting on with others, and 25 percent put themselves in the top 1 percent!

Here's another whopper: 87 percent of Stanford University MBA students rated themselves as above the median on academic performance. But it's not only students: a survey of faculty members at the University of Nebraska–Lincoln found that more than 90 percent evaluated themselves as above-average teachers.⁷

What about investors? Fun fact: Fidelity Investments reviewed the performance of its funds from 2003 through 2013, and found that the best-performing accounts belonged to investors who didn't touch their accounts during this time frame.⁸

Why? Investors have way too much confidence in their ability to predict short-term market trends, and as a result, make bad decisions that cost them money. Drivers who are overconfident make tragic decisions that put themselves and other drivers in danger. Overconfident leaders make poor decisions that often devastate the bottom lines of their organizations.

Overconfidence clearly does not serve us well in the modern world. Why did such overconfidence emerge in the ancient savanna? We're not at all confident about the evolutionary basis of the overconfidence effect, but one potential explanation has to do with reproductive success. Excessively confident people try more things and take more risks, and they both succeed and fail more often than those who take measured risks.

The successful ones might have passed on more genes in cultural contexts where the dominant male produced more children. For example, some studies suggest that perhaps 5 percent or more of the world's population is descended from the ancient conqueror Genghis Khan, due to his extraordinary ability to pass on his genes and raise his children well.

Before you consider that an argument for the benefits of overconfidence, consider what happened to all the confident rulers conquered and killed by Genghis Khan: they were the confident ones of their time who failed. By comparison, consider all the smart programmers who dropped out of college and failed to create Microsoft in the mid-1970s. How about all the entrepreneurs who started restaurants only to shut their doors and end up bankrupt a few years later? What about all the CEOs fired after failed mergers and acquisitions?

EXERCISE

Are you confident you don't need to do the exercises to get the benefits of reading this book? Then you're falling into the classic trap of overconfidence. Don't harm yourself, your career, or your business by ignoring the exercises in this chapter! Take the time to reflect on the following question for a few minutes, and write down your answer in your professional journal:

Where have you fallen for the overconfidence effect in your professional activities, and how has doing so harmed you? Where have you seen other people in your organization and professional network fall for this bias in their professional activities, and how has doing so harmed them?

The Many Flavors of Overconfidence

The phrase “A little knowledge is a dangerous thing” helps explain a cognitive bias related to overconfidence called the Dunning-Kruger effect.⁹ In this mental error, people with limited knowledge on a topic feel much more confident about their judgments compared with true experts on a topic. Experts are more likely to follow the guidance of a quote attributed to Aristotle: “The more you know, the more you know you don't know.”

In the 1980s, the Dunning-Kruger effect tripped up Avon Products when the company made a number of unwise acquisitions in the health-care industry, as described in Paul Carrol and Chunka Mui's Billion Dollar Lessons.¹⁰ Well known for its excellent sales in door-to-door beauty products, Avon decided to move into selling healthcare products door to door in the early 1980s. A wise decision that built on Avon's superb door-to-door sales force, the addition of health-care products resulted in strong sale growth.

It's what happened next that illustrates the Dunning-Kruger effect. After the company gained a little knowledge in the health-care field, Avon's leadership showed gross overconfidence. They acquired Foster Medical, a medical equipment-rental company, in 1984. In 1985, they bought two companies that operated nursing homes, Mediplex Group and Retirement Inns of America.

Unfortunately, Avon's leadership proved incompetent in managing these medical companies. Think “incompetence” is too strong? Think again!

In 1988, four years after the purchase, Avon took a $545 million write-off to get out of the health-care business. After they bought Mediplex for $245 million in 1985, Avon's poor management quickly turned their profitable business into one that lost money. Avon then sold Mediplex back to its previous owners for $48 million.

The owners righted the ship again and sold Mediplex in 1994 for $315 million. A pretty clear case of incompetence on the part of Avon's leadership, which should have stuck to its expertise in person-to-person selling. A little knowledge can be a dangerous thing indeed.

EXERCISE

Reflect on the following questions for a few minutes, and write down your answer in your professional journal:

Where have you fallen for the Dunning-Kruger effect in your professional activities, and how has doing so harmed you? Where have you seen other people in your organization and professional network fall for this bias in their professional activities, and how has doing so harmed them?

I Knew It!

“I knew it all along.” Have you heard your coworkers use that phrase when a product launch didn't succeed or a hire failed to work out? Isn't it annoying when they say that? I always want to reply, “If you knew it, why didn't you say something?”

Research finds that we vastly overestimate our prediction powers, a judgment error called hindsight bias.¹¹ For example, scholarship finds that doctors who learned a patient's diagnosis greatly overestimated their ability to predict the diagnosis. This error leads to bad judgments—and lost lives—when doctors offer a second opinion or evaluate the difficulty of an original diagnosis.

The hindsight bias is especially harmful because doctors are less likely to admit and learn from mistakes. After all, if other doctors judge you as incompetent for delivering the wrong diagnosis (because they incorrectly think the right diagnosis was easy), you won't be very likely to admit to a mistake. Fortunately, wise hospital administrators are developing successful programs that allow doctors to acknowledge and learn from mistakes that specifically aim to counter the hindsight bias.

Companies benefit greatly from instituting similar programs. In my consulting, I've witnessed many team members blame each other for problems in projects, activities, and initiatives that didn't work out with an arrogant “I knew it all along” attitude. It didn't help them reveal and learn from mistakes.

For instance, a financial services company had their sales staff compete with each other. There's nothing wrong with some healthy competition, but the competition impeded helpful collaboration. The sales staff ripped each other for failures to make sales, saying things like, “I knew he'd never make that sale” or “Why did she waste her time on that prospect? It was obvious she was just comparison shopping.”

To address this problem, we asked team members to evaluate in advance whether they think someone will make a sale or not, as well as the size of the sale. This quickly resulted in sales personnel growing less arrogant and more humble as they realized their predictions were often way off. It was one of several changes that helped encourage the sales staff to help each other, while still competing where it counted.

EXERCISE

Reflect on the following question for a few minutes, and write down your answer in your professional journal:

Where have you fallen for hindsight bias in your professional activities, and how has doing so harmed you? Where have you seen other people in your organization and professional network fall for this bias in their professional activities, and how has doing so harmed them?

The Glass Is...

While I am well aware of the problems caused by the overconfidence effect and try to avoid them, I still get tripped up by a related bias to which I am particularly susceptible: the optimism bias, excessive confidence in a positive vision of reality.¹² Do you know people who think the glass is half full? That's me! However, in 2014, this bias ended up costing me dearly.

My wife and business partner, Agnes, and I started a nonprofit that year, Intentional Insights, dedicated to popularizing decision-making science to a broad audience. At the time, I was teaching students about these topics as a professor at Ohio State University and also consulting, coaching, and speaking for businesses. However, I wanted to reach a much broader audience in order to address the suffering caused by poor decisions for those who couldn't afford my services or didn't attend my classes. Agnes, a consultant, coach, and speaker on this topic for nonprofits, also wanted to reach a broader audience.

Prior to this, we had never collaborated professionally. Despite our love and respect for each other, it did not go smoothly. We had many fights about the future. In fact, we experienced the worst tensions in our marriage during that time.

I would suggest a promising way to reach a broad audience, and Agnes would shoot it down. I proposed people who might want to get involved, and she said they'd never do it. I offered ideas about how we could structure our business systems, and she immediately found five reasons why they wouldn't work.

I felt criticized and hurt, and she was surprised that I felt that way. It was damaging, not only for our nonprofit collaboration, but also our marriage. We felt disconnected and alienated from each other.

Finally, we confronted the issue head-on in a series of conversations, and we figured out what was going on. I tend to think the glass is half full, and she sees it half-empty. I think the grass is green on the other side, while she thinks it's yellow. I suffer from the optimism bias and she suffers from its opposite, the pessimism bias, excessive confidence in a negative vision of reality and strong desire to avoid risks.¹³

Finally, I understood what went on in her head and heart. As she described it, although I felt criticized and hurt when she shot down my suggestions, she thought she was protecting both of us from threats down the road. When I offered a host of suggestions, she felt anxious and threatened by each one because she saw the problems and responded defensively with her autopilot system. It didn't mean I was right or she was right; it just meant that we weren't collaborating well.

The optimism/pessimism spectrum explained the crux of the difficulties we had experienced. It was a huge breakthrough that resulted in us getting the nonprofit—and our marriage—back on track. We learned innovative ways to collaborate together for both optimists and pessimists. As a result of working those points out, we were able to join our two solo consulting, coaching, and speaking businesses into one company, Disaster Avoidance Experts, which serves businesses and nonprofits alike.

We now help clients resolve similar issues. In one instance, I was hired to help improve team collaboration in the R&D department of a midsize metal manufacturing company. One of the biggest problems stemmed from the same type of conflict that my wife and I experienced. Optimists suggested ideas and pessimists shot them down. The optimists perceived pessimists as naysayers and nitpickers; the pessimists saw optimists as always going off half-cocked and coming up with half-baked ideas.

What my wife and I did—and what worked for this company and many of my other clients—involved separating the process of creating and improving ideas. Optimists are great at generating ideas, but not good at spotting the potential flaws of each idea: they are risk blind. By contrast, pessimists don't do well at creating ideas because they see all the possible flaws of each idea. They are too risk averse, turning each molehill into a mountain.

What's the fix? Optimists create the ideas, with an understanding that they are likely too optimistic about the quality of these half-baked ideas. The optimists then hand off the ideas to the pessimists, who select the best of these ideas and finish baking them. The transformation that results is magical. The vast majority of team conflict related to idea generation disappears, and you get a united team that produces a few top-quality suggestions.

EXERCISE

Reflect on the following questions for a few minutes, and write down your answers in your professional journal:

Where have you fallen for optimism bias in your professional activities, and how has doing so harmed you? Where have you seen other people in your organization and professional network fall for this bias in their professional activities, and how has doing so harmed them?

Where have you fallen for pessimism bias in your professional activities, and how has doing so harmed you? Where have you seen other people in your organization and professional network fall for this bias in their professional activities, and how has doing so harmed them?

The Myth: Failing to Plan Is Planning to Fail

The phrase “Failing to plan is planning to fail” is a myth, misleading at best and actively dangerous at worst. It is important to make plans, but our gut reaction is to plan for the best outcome and ignore the high likelihood that things will go wrong. Scholars call this cognitive bias the planning fallacy, where we have excessive confidence that our plans will go perfectly.¹⁴

A more accurate phrase is, “Failing to plan for problems is planning to fail.” To address the high likelihood that problems will crop up, you need to plan for contingencies. To do so, you have to anticipate what problems might come up and address them in advance. You also have to recognize that you can't anticipate every problem, and so you must build in a buffer of additional resources that can be deployed as unexpected problems come up.

In this example, a vice president of operations for a midsize IT firm asked me to coach a senior software engineer. Beloved by his colleagues, this engineer wanted to advance into management. However, he had difficulty completing his assigned projects on time.

After a 360-degree evaluation, it turned out that the engineer was so well loved because others came to him whenever they had challenges with their own projects. He never said no to their requests. He always thought that their requests would take just a small amount of time, yet often these “small requests” resulted in him getting deeply involved in their projects. No wonder they liked him, and no wonder he didn't get his own work done on time!

The engineer constantly fell into the planning fallacy: he thought that he would help work out a small bug, but frequently, the small bug was an indicator of a host of larger issues. We fall into the planning fallacy when we leave for a meeting that's fifteen minutes away by car exactly fifteen minutes beforehand, and forget about the possibility that we'll get stuck in traffic or forget our cell phone. As a result of such unexpected problems (which we should learn to expect) we have unplanned costs of time, money, and reputational resources, undermining our other plans, and snowballing into catastrophes.

It's not limited to us as individuals. Despite Germany's reputation for efficiency, the Brandenburg Willy Brandt Airport in Berlin has cost overruns of more than three-and-half times its original budget, from the planned 2.25 billion dollars to more than 8 billion dollars and counting. Originally slated to open in 2011, the date is now pushed back to 2021. Let's be clear: It's not simply government incompetency that's a problem. Tesla fell into the planning fallacy with its failure to meet delivery dates for its Model 3 in 2018, hurting its reputation and profits. I remember another example that's seared into my mind from April 1998. At a Comdex computer industry trade show in Chicago, Microsoft's CEO Bill Gates was demonstrating Windows 98, and the software promptly crashed. How embarrassing!

The engineer's planning fallacy is common, and not simple to fix. Sure, it may seem easy to say, “Well, the engineer should have just said no,” yet that approach carried its own risks, and my awareness of my optimism made me especially sensitive to these risks. Not only would it be very difficult for the engineer to drastically change his behavior, but it would also hurt his relationships with other engineers. It was the quality of those relationships that made him good managerial material. Moreover, saying no would hurt the company's output because of the critical role the engineer played in some high-impact projects.

Instead, I worked with the vice president of operations and the engineer to change the engineer's job description. We agreed that 40 percent of his activities would be directed at helping others with their projects, but no more, and that he would not get involved in more than three such projects at a time. The revised job description, which came with a new title and a raise, enabled the engineer to communicate effectively to his network within the company about his availability, and he could say no with a clear conscience. Within nine months of the change in job description, the engineer was promoted to management. Additionally, the company received the long-term benefit of having a new formal role for senior engineers who spent a lot of their time informally helping others, but were not rewarded for this critical function in the past.

I coached another software engineer who successfully rose through the ranks of a software consulting company into a senior management position. He had no problem saying no, but he did not know how to engage in healthy disagreements with people who weren't computer programmers.

His intuitive approach to disagreements was to argue stridently for his own perspective, and expect others to argue for their perspectives, with the best arguments winning out. Effective among fellow software engineers, this style did was not suitable for hashing out disagreements with colleagues from the marketing, sales, and financial departments.

My client overestimated the extent to which he persuaded other people, and also the extent to which his true mental state was visible to others, an overconfidence error called the illusion of transparency.¹⁵ We worked to change his style of communication during disagreements from arguing to listening, taught him to show curiosity about the emotions and goals of others, and build up trust and mutual understanding. This approach enabled a much better resolution of disagreements, and he became increasingly acknowledged as an effective communicator and leader, eventually rising to become the company's CEO.

EXERCISE

Reflect on the following questions for a few minutes, and write down your answers in your professional journal:

Where have you fallen for planning fallacy in your professional activities, and how has doing so harmed you? Where have you seen other people in your organization and professional network fall for this bias in their professional activities, and how has doing so harmed them?

Where have you fallen for illusion of transparency in your professional activities, and how has doing so harmed you? Where have you seen other people in your organization and professional network fall for this bias in their professional activities, and how has doing so harmed them?

The Utility of Humility

“Humility” is a rarely heard word in business contexts. It's true that we get ahead by looking, sounding, and feeling confident—the opposite of humble.

I wouldn't dream of telling you not to look or sound confident when implementing decisions, as failing to do so would undermine your professional success. Let me remind you that what I'm asking you to do is differentiate the process of making decisions from enacting them. For you and your company to survive and thrive, it's critical for leaders—especially top leaders—to avoid feeling and showing confidence during the decision-making process. In fact, you can be much more confident in your judgments if you adopt a measure of humility about the quality of your intuitive decision-making ability, and rely instead on research-based best practices when making the decision.¹⁶

Once you do make the decision and put safeguards in place to reevaluate it as needed at a future point, it's full steam ahead! When you put the decision into action, that is the time to demonstrate a full-throated confidence in the decision and make sure that you and your team give the decision the best possible chance to be successful.

Probabilistic thinking offers an excellent strategy to address various aspects of overconfidence. For example, say you're in the position of Avon Products and have some limited knowledge about a new area of business you'd like to enter. Protect yourself from the Dunning-Kruger effect by using a small experiment or two to test your idea.

Avon Products charged head-first into health care, buying several companies and losing more than half a billion dollars. Wouldn't it have been much wiser to establish a couple of joint ventures, or to buy one or two nursing homes instead of a large chain? That would have provided critical information to help Avon Products learn about the low probability of success and could have saved them many hundreds of millions of dollars.

The related strategy of making predictions about the future easily addresses a number of dangerous judgment errors, such as hindsight bias. When I consulted with the financial services company sales team and had them evaluate the likelihood and size of sale beforehand, it greatly decreased the hindsight bias. Research shows that having doctors make a diagnosis on the available evidence before learning the actual diagnosis showed them the large extent of their overconfidence, and resulted in much more realistic evaluations

The same strategy works for calibrating optimism and pessimism. Agnes and I made a great deal of progress in our professional collaboration once we started making predictions and learning who was better calibrated. Both of us have grown much more aware of our deviations from reality (and have the satisfaction of telling the other “I told you so” when proved correct). Many of my coaching clients benefited from using this strategy to gain a more accurate perspective, as have teams with whom I worked as a consultant. For teams in particular, I find it helps to have a competitive element, with some sort of reward for the team members who make the best guess (even a small one, such as deciding on the location for the monthly office outing).

Research has shown considering past experiences is one of the best tactics to address the planning fallacy. One of the ways we addressed the problem for the software engineer involved asking him to recall how much time similar projects had taken in the past. To his credit, he recognized pretty quickly how he tended to underestimate the amount of time new projects would take. Doing so helped us come up with the new guidelines for him and other senior engineers when getting involved in other people's projects.

The Brandenburg Willy Brandt Airport delayed its opening date more than five times, and may delay it again beyond 2021. Each delay was accompanied by negative press coverage and reputational blows to its leadership, as new problems discovered shortly before each deadline forced a delay. You'd think they would learn from experience, yet unfortunately, the evidence demonstrates their continued failure to do so. Learn from their mistakes, instead of making your own, and see how you can use past experience to avoid underestimating costs of time, money, and social capital for your projects.

Jeni's also illustrates the danger of failing to consider past experiences. Let's remember that already in 2008, FDA inspections found major health and safety concerns, and just a month before the listeria discovery in Jeni's, Blue Bell issued its own listeria recall. If Jeni's applied this strategy, it could have prevented the disastrous consequences of its own listeria incident.

Yes, I'll harp again on mergers and acquisitions. If you address the dangers of overconfidence by considering the combination of past experience and probabilistic thinking about the low likelihood of success, it would make CEOs much less likely to be bullish on M&A efforts.

As for the problem of overconfidence around other people, the strategy of considering other people's perspectives comes in handy. To address the illusion of transparency that tripped up the software consulting company manager, I conveyed to him the value of putting himself in the shoes of those with a different mindset. I asked him to imagine what he would feel—feel, not think—if he hated arguments and shut down when facing strident disagreements.

At first, he found it difficult to develop an accurate mental model of such people. To address that, we discussed where in his life he knew people who clearly shut down in the face of disagreements. He finally recalled such situations happening frequently in his church, where he served on a committee and couldn't advance his agenda because the others failed to respond to his communication style. With that mental image, he grew more capable of modeling managers from the marketing, sales, and financial departments, and engaging with them more effectively. Moreover, he brought this experience into his church service and was able to achieve his goals in that environment as well.

The same strategy applies to addressing team conflict around optimism and pessimism bias. Showing awareness of and respect for those with opposite preferences around risk and reward helped my clients—as well as my wife and myself—make much wiser decisions to avoid threats and seize opportunities.

Getting an external perspective offers an extremely effective counterweight against overconfidence. How many times have you looked at plans drawn by your colleagues and knew immediately they'd never fit within the time and money parameters they set? Plenty of research shows that we're much more capable of seeing flaws in proposals and plans made by others than those we make. Running these plans by objective and trusted advisers, especially those who have risk and reward preferences that differ from our own, helps align our aspirations with reality. This helps if they differ from you on the optimism/pessimism spectrum, which also facilitates collaboration in team settings where optimists and pessimists tend to fight.

Last, but far from least, you can get around overconfidence by setting policies for your future self and organization. If you're an optimist, commit to running your plans by a pessimist, and vice versa. To address overconfidence around resources, build in more than you or your organization might need, from 20 percent for projects in areas where you're an expert to 60 percent for ones where you're not to address the Dunning–Kruger effect.

Think it's too much? Tell that to Avon Products, who wasted more than half a billion dollars. An important aspect of setting a policy for your future self and organization involves de-anchoring, going out of your comfort zone for the sake of your success. You'll be thankful when an unanticipated disaster drives your competitors into bankruptcy and you are left with more than enough to buy what remains of their resources on the auction block.

This chapter's strategies empower you to be appropriately confident, knowing when and how to have the right level of self-assurance in your abilities. In the next chapter, you will learn which issues deserve your true attention when you make important judgments.

EXERCISE

Don't be overconfident that you got what you needed from this chapter and go straight to the next one! Take a few minutes to reflect on the following questions, and write down your answers in your professional journal:

How will you use probabilistic thinking to fight the biases described in this chapter? How will you help others in your organization and professional network use this strategy? What challenges do you anticipate in implementing this strategy and helping others do so, and what steps will you take to overcome these challenges?

How will you use making predictions about the future to fight the biases described in this chapter? How will you help others in your organization and professional network use this strategy? What challenges do you anticipate in implementing this strategy and helping others do so, and what steps will you take to overcome these challenges?

How will you use considering past experiences to fight the biases described in this chapter? How will you help others in your organization and professional network use this strategy? What challenges do you anticipate in implementing this strategy and helping others do so, and what steps will you take to overcome these challenges?

How will you use considering other people's perspectives to fight the biases described in this chapter? How will you help others in your organization and professional network use this strategy? What challenges do you anticipate in implementing this strategy and helping others do so, and what steps will you take to overcome these challenges?

How will you use getting an external perspective to fight the biases described in this chapter? How will you help others in your organization and professional network use this strategy? What challenges do you anticipate in implementing this strategy and helping others do so, and what steps will you take to overcome these challenges?

How will you use setting a policy for your future self and organization to fight the biases described in this chapter? How will you help others in your organization and professional network use this strategy? What challenges do you anticipate in implementing this strategy and helping others do so, and what steps will you take to overcome these challenges?

CHAPTER SUMMARY

Business leaders—and everyone else—tend to be vastly overconfident about their evaluations of reality and the quality of the decisions they make.

While showing and feeling confidence is necessary when implementing decisions, we need to focus on both feeling and exhibiting humility when making decisions, especially the top leaders in an organization.

Most business leaders suffer from optimism bias, the tendency to be risk blind and have excessively positive evaluations of current reality and the future. Some—especially in control functions such as finance, HR, and IT security—fall on the opposite end of the spectrum of pessimism bias, being too risk averse and down on current and future prospects.

Our gut pushes us to perceive that all our business plans will go well, resulting in underestimating the amount of time and money required and budgeted, so that a myriad of predictable problems results in an avoidable crises.

Our instinct is to overestimate the extent to which other people understand what we feel and think, as well as the meaning we intend to convey with our words.

Addressing overconfidence-related judgment errors requires deploying the following techniques:

probabilistic thinking

making predictions about the future

considering past experiences

considering other people's perspectives

getting an external perspective

setting a policy for your future self and organization