Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking

Kahneman, Daniel; Lovallo, Dan

doi:10.1287/mnsc.39.1.17

Cited by 1,696 publications

(457 citation statements)

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“…For example, it has been suggested that the planning fallacy (viz, the tendency to underestimate task completion times) results from individuals' reliance on oversimplified representations of future tasks (Buehler et al, 1994;Kahneman & Lovallo, 1991;Kahneman & Tversky, 1979). A visit of the in-laws is not part of the scenario of writing a paper, and therefore would not be taken into account in estimating the paper's completion time, even if known in advance.…”

Section: Discussionmentioning

confidence: 99%

See 1 more Smart Citation

Predicting the near and distant future.

Nussbaum¹,

Liberman²,

Trope³

2006

Journal of Experimental Psychology: General

138

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Four studies investigated individuals' confidence in predicting near future and distant future outcomes. Study 1 found that participants were more confident in theory-based predictions of psychological experiments when these experiments were expected to take place in the more distant future. Studies 2-4 examined participants' confidence in predicting their performance on near and distant future tests. These studies found that in predicting their more distant future performance, participants disregarded the format of the questions (e.g., multiple choice vs. open ended) and relied, instead, on their perceived general knowledge (e.g., history knowledge). Together, the present studies demonstrate that predictions of the more distant future are based on relatively abstract information. Individuals feel more confident in predicting the distant future than the near future when the predictions concern outcomes that are implied by relatively abstract information.Keywords: time distance, construal level theory (CLT), prediction, confidence, overconfidence Effective planning often requires predicting outcomes that are expected in the relatively distant future. For example, planning a vacation often requires predicting a long time in advance the weather conditions at the destination of the trip. Similarly, class registration requires predicting a long time in advance whether the selected courses would live up to one's expectations. The question then is whether and how temporal distance from future outcomes affects individuals' predictions about those outcomes. Does temporal distance affect the confidence with which predictions are made? Temporal distance from future outcomes ordinarily reduces the accuracy with which those outcomes can be predicted. Are individuals sensitive to these temporal differences in accuracy?There is a large amount of research on how individuals predict the future and the factors that influence those predictions (see, e.g., Griffin, Dunning, & Ross, 1990;Kahneman & Lovallo, 1991;Sherman, 1980;Wilson, Wheatley, Meyers, Gilbert, & Axsom, 2000). However, this research has typically compared predictions with actual outcomes. There is relatively little research on how temporal distance from future outcomes affects predictions about those outcomes. In an early study addressing this issue, Nisan (1972) asked participants to estimate their chances of correctly answering a random question from a test they expected to take on the same day or 4 weeks later. The results showed that greater temporal distance enhanced expectancy of success and risk-taking, particularly by individuals who were success rather than failure oriented. More recently, Gilovich, Medvec, and their colleagues (Gilovich, Kerr, & Medvec, 1993;Savitsky, Medvec, Charlton, & Gilovich, 1998) reported a series of studies showing that individuals had higher performance expectancies for distant future tasks as compared with near future tasks, a phenomenon they labeled "cold feet." For example, participants expected to perform better on a variety of...

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Section: Discussionmentioning

confidence: 99%

“…There is a large amount of research on how individuals predict the future and the factors that influence those predictions (see, e.g., Griffin, Dunning, & Ross, 1990;Kahneman & Lovallo, 1991;Sherman, 1980;Wilson, Wheatley, Meyers, Gilbert, & Axsom, 2000). However, this research has typically compared predictions with actual outcomes.…”

mentioning

confidence: 99%

Predicting the near and distant future.

Nussbaum¹,

Liberman²,

Trope³

2006

Journal of Experimental Psychology: General

138

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“…Now consider what may happen as task or environmental complexity is increased. Research suggests that this discrete focus, induced via situational framing, may actually reduce the leaders' capacity to work with multiple causes and, in turn, hamper performance (Bercovitz, de Figuieredo, & Teece, 1997;Dosi, & Lovallo, 1997;Kahneman & Lovallo, 1993). Thus, it seems reasonable to believe that performance may vary by situational framing and complexity, leading to the third study hypothesis.…”

Section: Complexity and Leadershipmentioning

confidence: 98%

Impact of situational framing and complexity on charismatic, ideological and pragmatic leaders: Investigation using a computer simulation

Hunter

Bedell-Avers

Mumford

2009

The Leadership Quarterly

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“…These could potentially include any psychological: overconfidence [49], optimism [50], hubris [28], narcissism [51], herd behavior [52], and culture heritage [53]. The literature on psychological characteristics and corporate risk-taking are shown in Table III. Behavioral decision theory suggests that hubris or overconfidence, as one type of cognitive bias, encourages decision makers to overestimate their own problem-solving capabilities [54], underestimate the resource requirements of risky initiatives [55], and underestimate the uncertainties facing their firms [56]. More importantly, people's psychological bias may generate the mode of thinking, the outlook on world, life and values which further influence one's decision-making and other behaviors.…”

Section: Psychological Bias and Risk-takingmentioning

confidence: 99%

Management Characteristics and Corporate Risk-taking: An Overall Review

Su¹,

Li²,

Wang³

2017

dteees

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Abstract. We review the literature on the relationships between management characteristics and corporate risk-taking over the period 1985~2015 and find that the two types of management characteristics: the physical characteristics and the psychological ones lead to different risk-taking behavior and firm outcomes. Generally, the physical traits have impact on taking risk by psychological bias and the psychological traits affect risk-taking behavior directly. We also find that the researchers always use the traits of CEO or top management as the proxies to explain management behaviors.

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Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking

Cited by 1,696 publications

References 43 publications

Predicting the near and distant future.

Predicting the near and distant future.

Impact of situational framing and complexity on charismatic, ideological and pragmatic leaders: Investigation using a computer simulation

Management Characteristics and Corporate Risk-taking: An Overall Review

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