The impact of Optimism Bias
and the Fight/Flight Response
on our perception of risk”
Jürgen Oschadleus
MBA MAIPM FILP PMP
Palisade Risk Conference
30 May 2012
© 2012 Act Knowledge & Jürgen Oschadleus
Objectives
 Challenges in our perception and
communication of risk
 Understand the development of thought
patterns and mental blind spots
 Compare intuitive and computationak
decision-making
© 2012 Act Knowledge & Jürgen Oschadleus
Operation Pluto (i.e. Bay of Pigs)
A PROGRAM OF COVERT ACTION AGAINST THE CASTRO REGIME
1. Objective: The purpose of the program outlined herein is to bring about the
replacement of the Castro regime with one more devoted to the true interests of
the Cuban people and more acceptable to the U.S. in such a manner to avoid any
appearance of U.S. intervention.
20 Jan 1961: Kennedy inaugurated
(Dwight D Eisenhower, 17 March 1960)
04 Apr: Kennedy approves plan
17 Apr: 1,300 troops invade
19 Apr: Cuba wins
• 118 US/Cuban exiles killed
• 1,202 others captured
Che Guevara “Thanks for Playa Girón. Before the invasion, the
revolution was weak Now it’s stronger than ever”
© 2012 Act Knowledge & Jürgen Oschadleus
Cuban Group Think
 Forceful arguments from CIA
▫ Filtered information
▫ Risks minimised
 Strong support from Joint Chiefs of Staff
 Latin America State Dept experts excluded
 Arthur Schlesinger silent in cabinet
Result:
• No debate of options
• No testing of underlying assumptions:
 Was landing site appropriate?
 Could exiles fade into mountains?
 Would locals rise up?
© 2012 Act Knowledge & Jürgen Oschadleus
Computation v Intuition
“System 1”:
 Intuitive
 Unconscious
 Powerful
Intuition:
 Effort free
“ the origin of much that we  Works with
“System 2”
do wrong”
information it has
 Rational, Logical  and most of what we do
 Deductive
right – which is most of what
 Reasoned
we do”
 Hard work
 Slow
 Needs more
information
© 2012 Act Knowledge & Jürgen Oschadleus
The Problem with Decision Analysis
1. Intuition and
rationalisation
2. Poor problem
definition
3. Incomplete
options
4. Inaccurate
estimates
5. Unrealistic
outcomes
© 2012 Act Knowledge & Jürgen Oschadleus
The Learning Cycle
Conscious
Competence
Conscious
Incompetence
© 2012 Act Knowledge & Jürgen Oschadleus
Unconscious
Competence
Unconscious
Incompetence
Patterns of Destructive Behaviour
Flawed mind
sets –
Zombie
culture –
Distort
perception of
reality
Keeps
inaccurate
reality in place
Communication
break down –
Urgent issues
lost
Misapplied
leadership
strengths –
Prevents course
correction
Finkelstein 2004, Why Smart Executives Fail
© 2012 Act Knowledge & Jürgen Oschadleus
Survival Tool 1: Optimism Bias
 Tendency to :
▫ Under estimate costs, time and risk
▫ Over state benefits, over-rate own ability
▫ The “planning fallacy”
“
…optimism may be
hardwired by evolution
into the human brain…
© 2012 Act Knowledge & Jürgen Oschadleus
(Tali Sharot)
Time, 6/6/2011
”
85%
of medical students believe it is wrong for
politicians to accept gifts from lobbyists
46%
of the same students believe it is wrong for
physicians to accept gifts from pharmaceuticals
84%
16%
of medical residents thought colleagues were
influenced by gifts from pharmaceuticals
thought they were similarly influenced
© 2012 Act Knowledge & Jürgen Oschadleus
The Response to Optimism Bias
Bent Flyvbjerg, 2004, 2006
 Reference class forecasting – using distributional
information from previous, similar ventures
 Outside view is
significantly more
accurate
Type of
project
Rail
Bridge/tunnel
Road
Avg
Inaccuracy
44.7%
33.8%
Std
Dev
38.4
62.4
20.4%
29.9
 The challenge is:
▫ developing an appropriate dataset
▫ dealing with strategic misrepresentation
© 2012 Act Knowledge & Jürgen Oschadleus
What’s Your Reaction?
Fight
Survival Tool 2:
The Amygdala:
Stores memories associated
with emotional events
Generalises more
Sees more threats
Errs on side of pessimism
Reduces working memory
© 2012 Act Knowledge & Jürgen Oschadleus
Flight
Freeze
Our Instincts and Emotions
 influence the way we frame a situation
 influence the options we choose to analyse
 cause us to consult some people and pay
less attention to others
 encourage us to collect more data in one
area but not in another
 influence the amount of time and effort we
put into decisions
© 2012 Act Knowledge & Jürgen Oschadleus
Elements of Persuasion
(Aristotle, Rhetoric, 350BC)
Now the proofs furnished by the speech are of
three kinds.
• The first depends on the moral character [ethos]
of the speaker,
• the second upon putting the hearer
into a certain frame of mind [pathos],
• the third upon the speech itself, in so far
as it proves or seems to prove [logos].
© 2012 Act Knowledge & Jürgen Oschadleus
h&qov
Kennedy’s Response to Bay of Pigs
Overhauled foreign policy
decision-making process:
1. Participate as “sceptical
generalists”
2. Appointed two intellectual watchdogs
3. Abandon protocol and deference to rank
4. Use sub groups to pursue options
5. Absent himself from some discussions
© 2012 Act Knowledge & Jürgen Oschadleus
The Result of Advocacy Inquiry
 13 day blockade
 World poised on
brink of nuclear war
 Russia backed down
©
ActKnowledge
Knowledge
© 2011
2012 Act
& Jürgen Oschadleus
The intuitive mind is a
sacred gift and the rational
mind is a faithful servant.
We have created a society
that honours the servant
and has forgotten the gift.
~ Albert Einstein ~
© 2012 Act Knowledge & Jürgen Oschadleus
For decisions that are:
Time allotment for information
collection and analysis
And use:
High
stakes,
Days,
strategically Rigour;
weeks, important, complex Defensible
months or require justification analysis
Qualitative methods;
Be conscious of
Difficult, but not worth
Hours
elements of
significant effort
decision quality;
Avoid biases
Minutes
Small, everyday,
“easy”, reversible
© 2012 Act Knowledge & Jürgen Oschadleus
Common
sense
Developing Expertise
 Experts made, not born
 No correlation with IQ
 Study with devoted
teachers/mentors
▫ Enthusiastic support
▫ Intensive practice –
• amount
• quality
Practice, reflection, analysis
© 2012 Act Knowledge & Jürgen Oschadleus
“The 10,000 Hour Rule”
2. Conscious
Incompetence
3. Conscious
Competence
5.
Deliberate
Reflection
1. Unconscious
Incompetence
4. Unconscious
Competence
“Knowing is not enough; we must apply
Willing is not enough; we must do”
(Johann Goethe, 1749-1832)
1. What new insight have you gained?
2. What are you going to do about it this week?
Jürgen Oschadleus
info@actknowledge.com
+61.438.460.464
© 2012 Act Knowledge & Jürgen Oschadleus
building influential leaders and organisations
www.actknowledge.com