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Optimal optimism

A 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. 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 analysed correctly?

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 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 are excited. 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. When something bad happens optimists employ different coping strategies using more positive thought pat­terns to see their way through.

But being overly optimistic, or overconfident, in the viability of a business has its drawbacks. While a positive view of the future helps to 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 endeavour.

BY CAPT SAM ADDAIH (RTD)

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