Management MGT 100 Lecture 11: Business in a Global Economy
Document Summary
Optimistic bias: we tend to exaggerate our ability to forecast the future. Plays a role in whether or not individuals voluntarily take on significant risks. More optimistic, more likely to take risks (entrepreneurs) Ceos who make unsound bets do not do so because they are betting with other"s people money, but rather when they personally have more at stake. Cognitive biases: wysiati (what you see is all there is) We focus on our goal and neglect relevant base rates, exposing ourselves to planning fallacy. We focus on what we want and can do, and ignore the plans and skills of others. Illusion of control: we focus on the causal role of skill and not the role of luck. We focus on what we know and not what we don"t know, which makes us overly confident in our beliefs. More competitors enter the market than the market can profitably sustain, so their average outcome is a loss.