Optimism, the Engine of Capitalism

The fallacy of marketing,
Optimism, the engine of capitalism

The Superiority of Illusions
The planning fallacy is just one of many signs of the optimistic bias that runs everywhere. We see the world as more benevolent than it really is, our own traits as more favorable,
and the goals we set as more achievable. We also overestimate our own ability to predict the future, which gives us optimistic overconfidence. It is perhaps no surprise that, of all cognitive biases, optimistic bias has the greatest impact on the outcomes of our decisions. Optimistic bias is both a blessing and a danger. If you have an optimistic temperament, be grateful for it — and at the same time, be on guard.

Ignoring the Competition
The fate of a startup depends on the performance of its competitors and changes in the market just as much as on the company's own efforts.
Yet because of WYSIATI, business leaders focus on what they know best — their own plans and actions, the threats and opportunities right in front of them, like funding availability. Because they don't know about the competition, they naturally imagine a future in which competition has little impact.

In economics, there is no evidence that risk-taking investors are particularly drawn to high-stakes gambles. They simply know less about the risks than the more cautious do. Together with Australian business school professor Dan Lovallo, I coined the phrase "bold forecasts and timid decisions" to describe the backdrop in which risk-taking actually occurs.
Can training overcome excessive optimism? I am not optimistic that it can. There have been countless attempts at training people to state confidence intervals that capture the inaccuracy of their judgments, but examples of meaningful success are few. One often-cited case is that of geologists at the oil company Royal Dutch Shell, who, after being trained on a variety of past cases with unknown outcomes, somewhat reduced their excessive confidence in guesses about drillable locations. In another case, when judges were asked to consider competing hypotheses, their overconfidence dropped (though it didn't disappear). Overconfidence is a direct product of System 1 — it can be tempered, but never completely eliminated. Subjective certainty comes from the coherence of the story you have built, not from the quality and quantity of information that supports the story. Always keep this important fact in mind.