Cognitive Bias 13 out of 25: Overoptimism Tendency

Our minds work in mysterious ways. Many times we have to balance being positive and optimistic with a healthy dose of reality and logic. They’re extremely tough to balance and if one side significantly outweighs the other you’ll start having issues. The overoptimism tendency is part of the 25 cognitive biases that dictate the way we make decisions.

Being optimistic is great for creating excitement and boosting morale but being over-optimistic may cloud your better judgement. Don’t get me wrong, optimism is needed because it inspires hope and gets humans to take action. Overoptimism will cause your mind to be in denial when you receive bad news or encounter failures. If you don’t know how denial kills business check out my post on it here.

Overoptimism is proven to affect our decision making abilities at times. Generally, we overvalue our decisions and think that they’ll all work out. But if you think about it, it’s impossible for every decision to be successful. People tend to fail more than they succeed. You may put in a crazy amount of research, planning, and testing but sometimes your decisions still might not work out. It’s part of life and happens to everyone!

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How Being Overoptimistic Kills Business

So now that you understand how overoptimism plays into your decision making abilities it’s important to know where it kills business. Businesses are faced with difficult decisions on a daily basis. One wrong move can guarantee the death of any business. I should rephrase that to STICKING with those wrong moves and refusing to pivot will guarantee the death of any business. In the same sense, individuals are faced with these same problems; myself and even you included.

Wrong calls happen all the time with individuals or in business and every company experiences them. Have you ever wondered why some companies can move on and others get demolished? Don’t think it’s because certain companies make great decisions 100% of the time.

Some get demolished because certain companies refuse to pivot even though deep down you know it’s a terrible decision. This stubbornness occurs because we let pride get in the way of what’s needed to be done (more on that here) or because of overoptimism.

“No one is as deaf as someone who will not listen.” -Old Proverb

I recently experienced this from a former employer. This employer was the franchise owner of multiple furniture stores and was very successful. I was managing one of their stores and they had the best year in their 25+ years of being in business, in 2017. But, the owners of this business wanted to buy the rights of a competitive furniture store and open in the same market to basically create a monopoly. They wanted to integrate both concepts even though everything was completely different.

Many employees and even executives from each corporate company advised against it because their operations and processes were essentially polar opposites. The owners decided that since it looked great on paper they’d still pursue it. After investing north of a million dollars they were confronted by the executives of each company and were given an ultimatum. They had to pick between the companies and switch all of their stores (5 in total) to one company or the other.

This clashing went on for months and during the process they had a turnover rate of over 60%. Their stubbornness and lack of caring for employees was enough to cause many people to quit. They extended hours, cut people’s pay, and demanded everyone take on extra tasks since numbers were down. Management was pleading with them that no one could go on with their demands and even lost a huge portion of management (hence why I’m a former employee).

In the end, the owner of the company decided to call it off and revert back to their initial company (that was already successful to begin with). It only cost them north of a million dollars, 60% of their employees, and all of their top salespeople. This was all caused because they were overoptimistic with an initial decision and refused to pivot sooner.

Meanwhile all the unheard voices were sitting there saying…

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How to Protect Yourself

It’s important to take certain actions to prevent this from destroying your business or even yourself. Listening to your gut or instincts will prove to be valuable. Deep down you know the difference between right and wrong. If your spidey senses are going crazy then stop and listen to them. It could be the best thing you ever do.

If you own or manage a business, I highly recommend listening to what employees and customers are saying. They’re the ones that’ll tell you what’s wrong. They’ll be able to let you know if something’s working out or if customers are taking to the changes. I’m not sure why some companies and management are so against this simple strategy. No matter what you can’t run a company from an office. You’ll start viewing everything logically which will turn everything being just another number. When human beings are involved this’ll be sure to kill any business as well.

Finally, using logic and setting timelines for different decisions will help you out. For example if you decided two years ago to subscribe to Netflix but stopped using it a year ago, don’t feel obligated to stick with that decision. People change and sometimes so do your interests. You can use this concept for pretty much every decision.

If after reviewing you aren’t seeing the results you thought you would then either change your game plan or pivot completely. Change might be the best thing for you and your business.

If my former company would have done things the right way by purchasing the rights to the other company and creating separate companies; I can almost guarantee that it would’ve worked out. They would’ve had a stranglehold on the market and most of their top employees. Instead they wanted to combine the two to save probably about 5-10% of operation expenses. Running a business from a 100% logistical standpoint will never work out when you are dealing with human beings that are highly emotional animals!

I’m truly grateful for all the things I’ve learned and for all those who helped me along the way. I hope that you’ve learned something from this and that I can positively impact your life! Grab life by the cajones and make it your bitch!

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Be great,

Cody Cameron