- June 10, 2012
- Posted by: Treadstone Management Partners
- Category: Strategy
One of the most common mistakes made by business executives is their use of information close at hand to navigate through the decision making process. Whether it is an immediate problem faced by the organization or planning for the future, easily available information forms the basis of inputs in making decisions. These unique and narrow set of inputs form the basis for complex, highly stylized and multi-faceted issues. This attitude towards decision making is seen as the inside view.
The inside view to decision making processes is difficult for business executives to isolate and eradicate. It is a result of our own perception of the issue that skews our outlook to more than favorable terms. The inside view inculcates an attitude that the problem at hand is unique and as a result all information at hand is the only information available. In contrast, the outside view to problem solving is markedly different. The outside view does not see a problem as one of a kind but rather, it looks for comparables and the outcome of those events in an effort to broaden the scope of information. This mindset is acquired with great difficulty because it does not focus on what we know but rather on what we don’t. However difficult, the outside view provides invaluable information because it serves as a reality check. To cultivate an outside view, we must first look at the symptoms of an inside view.
Social psychologists have identified three illusions that lead to an inside view: (1) the illusion of superiority; (2) the illusion of optimism; and (3) the illusion of control.
The Illusion of Superiority
Studies show that most people have an unrealistically positive view of themselves. In a survey conducted by the College Board in 1976, high school test takers were asked to rate themselves on a number of variables. The results were interesting. The questionnaire concluded that 85 percent of test takers believed they were above the median in getting along with others, 70 percent thought they were above median in leading others and 60 percent thought they excelled the median in sports. In another study, 80 percent of drivers considered themselves more skilled than the median.
A healthy dose of confidence never harmed anyone, however, confidence rooted in an illusion of superiority can lead to bad consequences for business executives.
The Illusion of Optimism
Most people see their future as brighter than those of others. They find themselves to be more capable than their adversaries and peers alike. They also find themselves more deserving of opportunities. This is the natural outlay of the illusion of superiority.
Researchers conducted a study where they asked college students to give them probabilities of having various good and bad experiences in their lives. The college students attributed a higher chance of them encountering good experiences in comparison to their peers. The same was true with bad experiences, students attributed a higher chance of their peers encountering bad experiences than themselves.
The Illusion of Control
People behave as if they possess control over situations that are dictated by chance. Though common sense may help individuals foresee their lack of control, common sense is veiled by the illusion of control.
In one study, researchers administered a lottery at an office. A ticket purchased for $1 gave you a chance to win $50. The office workers, however, were divided into two groups. The first group was allowed to choose their lottery ticket, while the second group had their lottery ticket chosen for them. Even though every lottery ticket holder had the same chance to win the prize, it’s not how they behaved.
Prior to drawing the winning ticket, one of the researchers asked the office workers the price at which they were willing to sell their ticket. The mean price for the group that chose their ticket was $9, whereas the mean price for the group who had the ticket chosen for them was less than $2. Individuals who believe that they exert some control over the decision making process believe their chances of success to be higher than those who don’t, even though the control exerted is meaningless. Individuals without a sense of control do not possess the same bias.
In a future post, we will discuss what steps to take to transition from an inside view to an outside view.
 Max H Bazerman, Judgement in Managerial Decision Making, 6th ed. (New York: John Wiley & Sons, 2006), 33-35.
 Mark D. Alicke and Olesya Govorun, “The Better-Than-Average Effect,” in The Self in Social Judgment, ed. Mark D. Alicke, David A. Dunning and Joachim I. Krueger (New York: Psychology Press, 2005), 85-106
 Neil D. Weinstein, “Unrealistic Optimism about Future Life Events,” Journal of Personality and Social Psychology 39, no. 5 (1980): 806-820.
 Ellen J. Langer, “The Illusion of Control,” Journal of Personality and Social Psychology 32, no. 2 (1975): 311-328.