Decision-making Bias Toward Optimism

Ever wonder why politicians, government administrators and policy-makers, CEOs and other power-brokers tend toward over-optimism and illusions of control? Daniel Kahneman and Jonathan Renshon help us understand why. A sampler:

Why Hawks Win, Daniel Kahneman, Johathan Renshon, Foreign Policy, Jan/Feb 2007: Why are hawks so influential? The answer may lie deep in the human mind. People have dozens of decision-making biases, and almost all favor conflict rather than concession. A look at why the tough guys win more than they should…. Social and cognitive psychologists have identified a number of predictable errors (psychologists call them biases) in the ways that humans judge situations and evaluate risks. Biases have been documented both in the laboratory and in the real world, mostly in situations that have no connection to international politics. For example, people are prone to exaggerating their strengths: About 80 percent of us believe that our driving skills are better than average. In situations of potential conflict, the same optimistic bias makes politicians and generals receptive to advisors who offer highly favorable estimates of the outcomes of war. Such a predisposition, often shared by leaders on both sides of a conflict, is likely to produce a disaster. And this is not an isolated example.

In fact, when we constructed a list of the biases uncovered in 40 years of psychological research, we were startled by what we found: All the biases in our list favor hawks. These psychological impulses—only a few of which we discuss here—incline national leaders to exaggerate the evil intentions of adversaries, to misjudge how adversaries perceive them, to be overly sanguine when hostilities start, and overly reluctant to make necessary concessions in negotiations. In short, these biases have the effect of making wars more likely to begin and more difficult to end.

None of this means that hawks are always wrong…. The biases that we have examined, however, operate over and beyond such rules of prudence and are not the product of thoughtful consideration. Our conclusion is not that hawkish advisors are necessarily wrong, only that they are likely to be more persuasive than they deserve to be.

Several well-known laboratory demonstrations have examined the way people assess their adversary's intelligence, willingness to negotiate, and hostility, as well as the way they view their own position. The results are sobering. Even when people are aware of the context and possible constraints on another party’s behavior, they often do not factor it in when assessing the other side’s motives. Yet, people still assume that outside observers grasp the constraints on their own behavior. With armies on high alert, it’s an instinct that leaders can ill afford to ignore.

…Even when alerted to context that should affect their judgment, people tend to ignore it. Instead, they attribute the behavior they see to the person's nature, character, or persistent motives. This bias is so robust and common that social psychologists have given it a lofty title: They call it the fundamental attribution error.

The effect of this failure in conflict situations can be pernicious. A policymaker or diplomat involved in a tense exchange with a foreign government is likely to observe a great deal of hostile behavior by that country's representatives. Some of that behavior may indeed be the result of deep hostility. But some of it is simply a response to the current situation as it is perceived by the other side. What is ironic is that individuals who attribute others' behavior to deep hostility are quite likely to explain away their own behavior as a result of being "pushed into a corner" by an adversary. The tendency of both sides of a dispute to view themselves as reacting to the other's provocative behavior is a familiar feature of marital quarrels, and it is found as well in international conflicts….

If people are often poorly equipped to explain the behavior of their adversaries, they are also bad at understanding how they appear to others. This bias can manifest itself at critical stages….

Excessive optimism is one of the most significant biases that psychologists have identified. Psychological research has shown that a large majority of people believe themselves to be smarter, more attractive, and more talented than average, and they commonly overestimate their future success. People are also prone to an "illusion of control": They consistently exaggerate the amount of control they have over outcomes that are important to them—even when the outcomes are in fact random or determined by other forces….

Indeed, the optimistic bias and the illusion of control are particularly rampant in the run-up to conflict….

If optimism is the order of the day when it comes to assessing one's own chances in … conflict, however, gloom usually prevails when evaluating another side's concessions. Psychologically, we are receptive not only to hawks' arguments … but also to their case against negotiated solutions. The intuition that something is worth less simply because the other side has offered it is referred to in academic circles as "reactive devaluation." The very fact that a concession is offered by somebody perceived as hostile undermines the content of the proposal. What was said matters less than who said it. … Some of that skepticism could be the rational product of past experience, but some of it may also result from unconscious—and not necessarily rational—devaluation.

Evidence suggests that this bias is a significant stumbling block in negotiations between adversaries…. [U]nderstanding the biases that most of us harbor can at least help ensure that the hawks don't win more arguments than they should.

Cross-posted from Economic Dreams—Nightmares. See also John Quiggin's Pro-War Bias.

Comments

[GRAHAM BIRD]

In addition to these psychological aspects the slowness of turnaround is related to the lagged effect of population growth.
My phrase for this understanding is "the cascade of consequences". Babies increase pressure on resources but the initial effect is small. However, especially for affluent populations, by the time these younger community members are in their 20's & 30 much larger impacts, eg car purchasing and homes. And then there's the image of what is required. In NSW, AUSTRALIA, the belief that an adequate home has a room for a home theatre was a factor in average floor areas of new houses increasing by 10% between 2002 and 2003.