The tendency of people to overestimate the likelihood of experiencing positive events relative to others, and underestimating the likelihood of experiencing negative events.
Insight: Unrealistic optimism can explain a lot of individual risk-taking.
Insight: When asked about the future, students typically say that they are less likely than their peers to be fired, have a heart attack or cancer, be divorced, or have a alcohol addition.
Insight: Unrealistic optimism is present across most societies, and economic groups.
Definition: An attachment to favourable odds, even when the downside is unacceptable.
Example: Russian roulette - the odds are in your favour, the the downside is not worth any potential upside.
Insight: Excessive leverage - taking on debt to make money go further - can produce ruin.
Reference: Nassim Taleb: "You can be risk loving and yet completely averse to ruin."
Principle: Take risk, but never enough that is enough to wipe you out.
Insight: Projects and programs are regularly subject to optimism bias.
Principle: Apply percentage adjustments (debiasing) to cost and duration of projects, ideally based on organisational history of optimism bias.
Definition: The mistaken belief that we are less likely to experience negative events than others.
Insight: Emotion leads most people to underestimate the possibility of negative things happening to us.
Definition: The belief that you are a better judge than others, and misfortune is less likely to happen to you than others.
Key Insights & Principles
Decision Making
Optimism bias leads to excessive risk taking.
Projects are regularly subject to optimism bias.
Across all societies and groups people tend to believe that they are a better judge of things than others.
Take some (calculated) risks, but never enough to wipe you out.
Apply percentage adjustments in cost and time to project plans.
