"The Dark Side of Optimism"

Our colleague Susan Webber’s article, “The Dark Side of Optimism” is the cover story in the current issue of The Conference Board Review. It discusses the deep roots of optimism and how it can undermine critical thinking and accurate risk assessment.

Her piece is wide-ranging, looking at psychological research, cognitive biases, cultural icons, military history, and even mythology to explore the manifestations and workings of our collective predisposition to look at the bright side. We hope you’ll find this perspective helpful in both organizational and investment decision-making.

From the Conference Board Review:

Has positive thinking gone too far in corporate America? That may sound like a bizarre question: Optimism is widely seen as a virtue of American culture and key to success in business. Cultural norms and beliefs about good business practice increasingly stress looking at the sunny side and de-emphasizing the problematic.

But such overly positive thinking is difficult to reconcile with the need to make realistic, objective assessments. Finding the right balance between healthy optimism and delusion is harder than one might imagine, for both individuals and institutions.
And despite years — decades — of sobering examples, we don’t seem to be any closer to that balance. The recent recklessness of residential and commercial real-estate lending was in plain view, and a vocal minority wrote about it. But the financial and business communities dismissed all the warnings, insisting that any damage — should it ever arrive — would be contained to the subprime sector. The folly was obvious: Even if decision-makers had deemed the grim forecasts to be of low probability, the potential outcomes were so dire that they demanded contingency plans. On other fronts, experts are issuing warnings about the dollar’s continuing slide, which could worsen international financial stability, and about oil prices, and the hiring slowdown, and any number of potential crises looming in the near future.

We acknowledge these problems and their seriousness — and then put them out of mind. Instead of treating worrisome developments as new information and looking dispassionately at the risks, we tend to avoid working through downside scenarios because they are upsetting. It’s simply easier to put on blinkers and believe everything will work out than to confront the complexities of modern life.

“Negativity,” an awkward coinage, has widely come to be used pejoratively. Magical thinking, too, has become increasingly popular as a way to gain the illusion of control in an uncertain world. Rhonda Byrne’s motivational best-seller The Secret, for example, basically says that you get what you wish for. If you don’t have the things you want, it means you don’t have enough faith. In this construct, neither insufficient effort nor bad luck plays a role.

In the business world, we’ve moved from hardheaded to feel-good management. As Financial Times columnist Lucy Kellaway observed recently: “For people in any position of authority the ability to say no is the most important skill there is. . . . No, you can’t have a pay rise. No, you can’t be promoted. No, you can’t travel club class. . . . An illogical love of Yes is the basis for all modern management thought. The ideal modern manager is meant to be enabling, empowering, encouraging and nurturing, which means that his default position must be Yes. By contrast, No is considered demotivating, uncreative and a thoroughly bad thing.”

To illustrate, Tom Peters’ Leadership offers an impossible, irreconcilable list of exhortations: Be a great salesman, great storyteller, great performer, networking fiend, talent fanatic, relationship maven, visionary, profit-obsessive, and (of course) an optimist. Push your organization; know when to wait; love mess, politics, and new technology; lead by winning people over; foster open communication; show respect; embrace the whole individual. Granted, Peters does give a couple of breaks — leaders get to be angry and make mistakes. But his list is all sizzle, no steak. Not only are his executives reluctant to say no — they don’t develop any of the guts of what managing is really about: making decisions under uncertainty, creating routines, developing (not merely exhorting) direct reports, responding to crises, building in enough slack to deal with low-probability but high-consequence opportunities and risks.

The religion of management has instead shifted from hard skills to soft, interpersonal ones. While the human touch is important, making it the gold standard of good management practice is dangerous. It reinforces, rather than counters, the role of emotion in our decision processes.

The end result is a bias against critical thinking. It’s hard enough, in the delicate social web of most organizations, to question the merits of any given proposal offered in good faith. But now decision-makers stagger under the weight of larger social trends and management fads that favor belief and force of personality over dispassionate analysis. Detached, rigorous thinking simply doesn’t fit any of our cultural models. In his 1949 classic The Hero With a Thousand Faces, Joseph Campbell showed that the hero’s journey is a story found in every culture — just as management literature about leadership, whether knowingly or not, casts corporate chieftains as prototypical heroes. But what archetypes do we have for the anodyne analyst? In mythology, Hermes and Loki were clever but also troublemakers and tricksters. Science fiction, too, has long depicted alien beings as detached, logic-driven Cassandras whose warnings are invariably brushed off by upbeat, forward-thinking Earthlings (whose impetuosity, more often than not, saves the day). But that’s just it — it’s science fiction.

The article continues here, at the heading “The ‘Bright Side’ of Bias.”

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  1. Anonymous

    to concentrate only on the positive leads to nowhere to concentrate only on the negative is also nutty.Positive & negative are two sides of the same coin,its the struggle of these two opposites that we must analyze if we are to understand this world.roger

  2. Anonymous

    A few years back, I was told by the head of my division that I complained too much. Specifically, I focused too much on problems and that I had to decide if I wanted to keep my job. It was made very clear to me, either I stayed quiet or found work elsewhere. Not much of a choice as it was a poor time for a new job search. I kept my mouth shut. Within a year, two of the problems I had very clearly identified blew up in his face as much bigger problems than if they had just been dealt with swiftly when first found.

    No wonder the mediocre have risen to the top.

  3. foesskewered

    Let’s see, I’ve rarely been optimistic, not much of a doomsday believer though (what you expect you rarely get), partly ‘cos God has always seemed to have a very british (dark comedy) sense of humour towards me. Anytime anything good comes along, it’s always full of thorns, makes that sense of dread and caution hard to dismiss. Might explain why those eternal optimists have always seem to be high on something, maybe too much prozac?!

    anyway, aren’t optimists the ones who usually buy into a falling stock, hoping for that rebound or even to cut losses by averagingprices/costs? still think the markets are in a bipolar funk, whatever that behavioural expert at the ft thinks, just look at europe

  4. "Cassandra"

    A certain amount of optimism is required to attempt to put a man on the moon, decode the human genome, or set about trying to cure cancer.

    That said, America does flirt rather dangerously with excessive optimism that results in troubling departures with something resembling objective reality. I recall two interviews on day in early 2001, one with a large US chipmaker, and another with the head of Philips semiconductor division. The American was speaking wishfully about “the bottom being reached” and a “deceleration in order declines and cancellations” whereas the sober-minded Dutchman was speaking of truthfully about near-obliteration wiht no signs of upturn in sight, so with a cash-hoard they were sitting tight on the acquisition front until valuations returned to more reasonable levels. I needn’t say whose perception of reality was closer to reality.

    But the most memorable illustration I can recall substantiating Susan’s piece was a seminal study recounted to me by my Industrial Sociology prof at LSE of, I believe Bosch-affiliated plants in the US, Spain, UK and Netherlands, all producing near-enough the same widget (driveshafts, u-joints or somesuch, if I am not mistaken). With an objective measure of quality (in defect rates of the same product) they went on to ask the workers in the different geographical regions their opinions of their work in order to measure the relationship between different workforces perception of reality with objective reality characterized by defect rates.

    When the results were tabulated, Spanish workers, it was revealed, had a low opinion of their work, but comparatively low defect rates, conservatively underestimating the quality of their work. The Brits by had a low opinion of their work, but comparitively higher than average defect rates making their perception of reality closer to the mark. The Dutch workers had a high opinion of their efforts, and comparitively had the lowest defect rates, again signaling a reasonable alignment of their perceptions with objective reality. The American workers, however, had a very high opinion of their work, though had comparitively high defect rates making their perceptions of reality most divergent from that objectively measured by defect rates!!

    I think this speaks volumes about the world’s general suspicions regarding the nature of both American Optimism (and by extension Triumphalism) and the baggage that it brings, which has real economic and political consequences if proclaimations and rhetoric are more likely to resemble Radio Pyongyang than the BBC. For Lack of Trust creates Uncertainty, and uncertainty receives a higher discount in the marketplace than greater trust engendered by a closer alignment between perceptions of reality and reality itself.

  5. Yves Smith

    Anon of 6:13,

    The point was that in America, there is a tendency to reject any form of pessimism, per 6:34’s and Cassandra’s comments. I’ve found American clients have a lot of trouble digesting bad news, I often have to tell them in writing to get through their rosy eyed glasses.


    Great stories. Would love to get a hold of that paper. If you or your LSE buddy would send a copy or a link, it would be very much appreciated.

  6. "Cassandra"

    Here is one more for you basis your least comment…

    My uncle’s (branding strategy & research) firm was hired by Citibank (back in the mid 80s) in order to help them find the best way to sell Citi-branded insurance products to their customers through their branch networks. He went out, digested his numerous focus groups asking lots of his typically lateral questions and prepared to present his findings to the executive committee. He was unpopular to certain folk for he never minced words or sugar-coated anything. He went in there and told them Citi doesn’t have a chance in hell of selling their customers insurance since everyone hates their own bank and thinks the other bank is better. So their best strategy (if they want to successfully sell insurance) is to target non-Citi customers who would have a higher opinion of their brand and products than their own. Mgmt was aghast, mortified, offended beyond belief, rejecting his findings and terminating his consultancy effective immediately. So much for embracing truth in the boardroom…..

    I will look for the paper (mid 80s IR guru Prof Stephen Hill recounted it to me)

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