KEY IDEA

As human beings we tend to over-estimate our

ability to control events
All decisions involving uncertainty run the risk that
expectations might not be met.
No plan ever survives contact
Risk = chance of adverse consequences
Time = risk
Good luck is doing better than objective
possibilities 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 might
suggest
Most decision failures happen through over-
optimism
Choosing the lottery card
Evidence of research into gambling behaviour
Our daily to do list
Players tend to shake softly when requiring a
low 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

In other words we behave as if we can control
events that are entirely due to chance
Over-confidence can lead us to take bigger
risks than the objective situation warrants

Research has shown that entrepreneurs are
habitually 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.
The illusion of control is heightened when the
game involves an element of skill why?


Almost all business decisions involve a mixture
of skill and luck


So how much of your success is due to skill,
and how much is due to luck?
We tend to attribute our success to our own
abilities
We tend to attribute failure to bad luck
When working in teams we often see
colleagues more as a hindrance than a help
When other people succeed it was because they
were lucky


The proverb teaches nothing succeeds like
success.
That may be true to a point!
Success can create a so called virtuous circle

Repeated success can become dangerous.
WHY?????
THINK .

What can happen if you are consistently
successful?
Success, particularly if repeated, tends to
confirm 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 the
first place.
For example, we may not bother with detailed
research and planning.
We decide to take out huge loans confident that
we will be able to re-pay them
We may not bother with contingency planning
The result is that decision-makers take bigger
risks than the objective situation justifies
usually without realising how exposed they
have become.

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 that
we should listen to them
Ego-defensiveness can lead to escalation


Fred Goodwin and Royal Bank of Scotland
Enron
Lehmans
Porsches bid for VW

Can you suggest others?
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 no
prospect of success
Decision over-reach
Complacency produces increased risk of
accidents


Virgin
Tullow Oil
HTC
Apple

Can you suggest more?



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 should
worry us, but what seems rock-solid certain.
Project a scenario where the decision has gone
badly wrong. What do you learn from it?

All decisions involving uncertainty imply risk
As human beings we have an innate tendency to
believe that we can beat the odds known as the
illusion 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 to
warrant.
Ultimately it is the belief (frequently mistaken) that we
cannot fail.
Depression: is it seeing things as worst than
they are or as they really are?

What is risk?

The word risk derives from medieval Italian
risicarre meaning to dare.

This definition implies that risk is a choice
rather than a fate
In other words, this definition implies that we
bring our misfortunes on ourselves.

WHO DARES WINS (?)