713 illusion of control

8/12/2019 713 Illusion of Control

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KEY IDEA

As human beings we tend to over-estimate ourability to control events


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All decisions involving uncertainty run the risk thatexpectations might not be met.No plan ever survives contactRisk = chance of adverse consequencesTime = risk


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Good luck is doing better than objectivepossibilities might suggest

Bad luck is doing worst than objective

possibilities might suggest Over-optimism is believing in a better outcome

than objective conditions might suggest

Under-optimism is believing in a worst

outcome than objective conditions mightsuggest

Most decision failures happen through over-optimism


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Choosing the lottery card

Evidence of research into gambling behaviour

Our daily to do list


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Players tend to shake softly when requiring alow number

Players tend to shake hard when requiring a

high number Players bet more if they can deal the cards

Early wins in games of chance induce higher

betting


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In other words we behave as if we can controlevents that are entirely due to chance


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Over-confidence can lead us to take biggerrisks than the objective situation warrants


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Research has shown that entrepreneurs arehabitually over-confident.

Fewer than 20% of new businesses survive

beyond two years But entrepreneurs expect to succeed even

though the odds are stacked against them.


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The illusion of control is heightened when thegame involves an element of skill why?


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Almost all business decisions involve a mixtureof skill and luck


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So how much of your success is due to skill,and how much is due to luck?


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We tend to attribute our success to our ownabilities

We tend to attribute failure to bad luck

When working in teams we often seecolleagues more as a hindrance than a help

When other people succeed it was because they

were lucky


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The proverb teaches nothing succeeds likesuccess.

That may be true to a point!

Success can create a so called virtuous circle


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Repeated success can become dangerous.

WHY?????


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THINK .

What can happen if you are consistently

successful?


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Success, particularly if repeated, tends toconfirm our belief in our own competence

In other words, it tells us we cannot fail. So, we forget all the good disciplines of

decision-making that made us successful in thefirst place.

For example, we may not bother with detailedresearch and planning.

We decide to take out huge loans confident thatwe will be able to re-pay them

We may not bother with contingency planning


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The result is that decision-makers take biggerrisks than the objective situation justifiesusually without realising how exposed they

have become.


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Psychologists refer to such behaviour as ego-defensiveness

Ego-defensiveness can make it hard for us to

accept that we are wrong Ego-defensiveness can make it hard for us to

see that other people have good ideas and thatwe should listen to them

Ego-defensiveness can lead to escalation


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Fred Goodwin and Royal Bank of Scotland

Enron

Lehmans

Porsches bid for VW

Can you suggest others?


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Failure to conduct sufficient research

Tendency to under-estimate difficulties

Tendency to under-value contributions others

make or would make if only the decision-maker would listen

Embarking upon ventures with little or noprospect of success

Decision over-reach Complacency produces increased risk of

accidents


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Virgin

Tullow Oil

HTC

Apple

Can you suggest more?


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Stop! Think! Could you be mistaken?

What is your optimism founded on?

What assumptions are you making?

How do you know what you think you know?

Remember: it is not the doubts that shouldworry us, but what seems rock-solid certain.

Project a scenario where the decision has gonebadly wrong. What do you learn from it?


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All decisions involving uncertainty imply risk As human beings we have an innate tendency to

believe that we can beat the odds known as theillusion of control

The illusion is fuelled by- ego defensiveness- when the game involves skill as well as luck

- repeated success The illusion of control can lead decision-makers to take

bigger risks than the objective situation appears towarrant. Ultimately it is the belief (frequently mistaken) that we

cannot fail.


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Depression: is it seeing things as worst thanthey are or as they really are?


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What is risk?


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The word risk derives from medieval Italianrisicarre meaning to dare.


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This definition implies that risk is a choicerather than a fate

In other words, this definition implies that webring our misfortunes on ourselves.


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WHO DARES WINS (?)


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713 illusion of control

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