Optimism bias, strategic misinterpretation and reference class forecasting

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Through reading this article, a clear and succinct explanation of the strategies and ideas discussed above will be discussed. A brief analysis will be given on how it is used in business practice to increase efficiency and a detailed paragraph of the studies' limitations as a theory will also be covered.


Optimism Bias

Optimism bias definition is a form of cognitive bias. This bias refers to the belief that there are reduced negative externalities about a specific situation[1]. Factors that contribute to Optimism Bias is if an individual has a more informative view of the desired end state of the project, the cognitive mechanisms in use, the information the individual or company has to begin with and the overall mood of the project scope. All these factors significantly contribute to the bias, potentially skewing judgement on a project. Optimism Bias can be both positive and negative, for example, an overoptimistic overall outcome of a project's benefits can lead to poor planning, budgeting and other factors in the early stages of the project portfolio link title. However, an increased Optimism Bias can be seen as quite a positive aspect of a business plan. An over-confidence in the desired outcome would increase expectations as it is falsely made to look that it is easier to achieve. Although this sounds negative if not met, increased expectations help a business grow considerably as the company will continuously strive to potential new feats as noted by Psychologists Margaret Marshall and John Brown's theory of Optimism Bias TED TALK.

  • ---Definition
  • ---Statistically impossible for everyone to be better than everyone else
  • ---low expectations/High expectations
  • ---John Brown??
  • ---Anticipation makes us happy/enhanced well-being
  • ---Leads to success
  • -----Theory
  • -----Expectation

(left/right infer front girus)

  • ---0% divorce


Treated as a safety blanket!

Strategic Misinterpretation

Reference Class Forecasting

  • --- Daniel Kahneman, Amos Tversky Nobel?
                          *---people underestimate
                          *---people overestimate
                               *--- benefits of same actions
  • ---Outside View
  • Identify a reference class of past similar projects


  • Cognitive Bias
  • Availability Biases

Confirmation Bias AGree/Disagree

Setbacks of Reference Class Forecasting


Business Practise









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