Optimal Optimism

ManagersA positive outlook can be a powerful force in business. But what if someone’s optimism is unrealistic, unfounded or excessive? Rose Trevelyan says the results can be lethal. So how can we be optimistic without being overconfident?

Optimism is a double-edged sword: on the one hand, generating high levels of activity, motivation, and persistence; but, on the other hand, discouraging us from looking too deeply at our assumptions in case we find something disconcerting. This is particularly relevant to leaders.

Optimism is vital to overcome the anxiety about starting something that nobody has done before, but too much optimism can keep us from acknowledging that there are risks involved whenever assumptions are made with very little data to support them.


Optimism versus Over Confidence

So, one needs to be optimistic but not too optimistic. Research suggests that it is possible to be optimistic in order to capture the motivational benefits as well as to keep overconfidence in check to avoid decision-making errors. One reason it is possible to do both is because fundamental difference between optimism and overconfidence.

Optimism is a stable trait, much like personality trait. People tend to be either optimistic or not. However, overconfidence is not a stable trait: it is high in some situations, low in others. I might be very confident of my ability to stand in front of large class of adult students and teach management principles because I have training and experience as a professional management development instructor. I might lack the confidence to stand in front of a small congregation to preach because I have no training and experience in bible studies.

So, if optimism and overconfidence are separate types of cognitive processes, it is possible to have high levels of one but low levels of the other. Effective leaders know when to use their optimism to keep themselves and others on track, and they know when and how to challenge their positive outlook.

They ask probing questions to avoid decision blindness and search beyond what they think they know. Challenging an overconfident judgment involves two steps: first, recognizing the situation in which overconfidence is most likely to occur; and, second, knowing how to reduce overconfidence to arrive at a more realistic estimate of business success or personal skill.


How to Know When Overconfidence Is Likely

Knowing yourself. Knowledge and experience about a task generally increase our overconfidence in executing that task. But there comes a point at which too much experience or knowledge can produce overconfidence. If you are too familiar with a particular problem, you may go into automatic pilot and assume that what you did last time will be successful this time. But problems change, sometimes in subtle ways.

Overconfidence also happens when managers are in a heightened emotional state. Most leaders feel passionate about what they do, and it is easy to get overanxious while strategizing. Feeling excited about developing the technology, launching the product, or beating the competition induces euphoric state that can produce a hyperactive state. If there is an obvious path to achieving the goal, the state of hyperactivity leads managers down that path without first checking if it is the best course of action in the long run. Many leaders are guilty of becoming fixated by their dreams of growth.

Knowing your coworkers, decisions are not always taken in isolation, of course. We often make decisions as part of a team or ask others for their input before we make a decision. Group decision making has its own dynamics, and one associated with overconfidence is groupthink. People around you can play a very important role in challenging your thinking, offering alternatives, playing devil’s advocate. Leaders, though, often have dominant personal styles, which are not conducive to encouraging feedback or disagreement with a planned course of action. So look at the people around you. If they are following you blindly, this increases the chances that your confidence in your decisions you are making is not being checked.

Knowing the situation. There are some situations that encourage us to be more confident in our decisions. One type of situation that often produces overconfidence is familiarity. Much like the problem of having too much knowledge or experience, being too familiar with a situation can lead us to rely on tried and tested responses. Each situation we are in has certain cues that set off stimulus response patterns in our brain. If we see the cue (stimulus) we go straight to the routine response. And because we have used this stimulus-response pattern successfully in the past, we are confident that it will also be successful here. For a leader each venture is different, and relying on experiences in prior ventures or work experiences can be problematic.


How to Check Overconfidence

Having identified that overconfidence is both problematic and likely, how can we manage it? Rose Trevelyan prescribes three strategies that seem to work best.

Using cognitive techniques. Edward Russo and Paul Schoemaker describe a technique called “counter argumentation.” leaders use this technique to help them see where their plans might go wrong or identify and challenge the assumptions they made about their business, its customers and competitors. Such powerful “stop-and-think” questions are often employed: In which scenarios might my reasoning not hold true? What is the main reason I might be wrong about this? What data would suggest this decision is incorrect? Has all the relevant information been collected and analyzed correctly? If this business were failing, what would the signs be?

Leaders also often use brainstorming methods to break out of the dominant mode of thinking. Brainstorming can be used as a process for answering the counter argumentation questions identified above or as a process for generating alternative options for the business model. Brainstorming helps avoid overconfidence by offering alternatives that can be compared with “obvious” solutions or proposals with which leaders are emotionally attached.

Searching for alternatives. Many leaders regularly and proactively look for alternative explanations of events or alternative courses of action. New opportunities often emerge from a frustration with existing offerings or by inventing a new technology. These opportunities look and feel like winners; and it is hard to discard a winning idea. But by regularly looking for ways to adapt or replace the winning idea, some leaders are much more able to improve their business models than others.

Managing emotions. Because emotions are often the cause of overconfidence, being able to manage your emotions is one way to avoid overconfidence. Successful leaders often avoid making decisions when they were excited, having learned the hard way by making rash decisions to their detriment. They also learn to revisit decisions later. Being able to reduce overconfidence requires humility. “I sometimes fail – is this one of those times?” This is probably one of the hardest questions for optimists to ask.


Benefits and Drawbacks

It is widely acknowledged that optimists are healthier and cope better with stress than pessimists. Having a positive outlook on life helps us deal with the setbacks that life sometimes throws us. Optimists are more able to pick themselves up and move on. When something bad happens optimists employ different coping strategies using more positive thought patterns to see their way through. In business, this is useful, particularly for leaders who are more likely to suffer setbacks as they work in an environment of uncertainty, discovery, and risk.

But being overly optimistic, or overconfident, in the viability of a business has its drawbacks. While a positive view of the future helps motivate people to work towards it, it can also make people blind to the challenges ahead or to changes in the competitive landscape. Russo and Schoemaker define it as an overestimation of the limits of our knowledge.

Thus optimism has dual and opposing consequences. On the one hand, it positively influences motivation and persistence; but on the other hand, it can negatively influence decision making, leading to perceptual biases and cognitive shortcuts. Understanding the difference between optimism and dangerous overconfidence would appear to be a skill in itself, one that can affect one’s chances of success in any endeavor.

 By Captain Sam Addaih (Rtd)

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