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This is the weekly Uncertainty Project newsletter where we explore research, biases, and techniques for strategic decision making in uncertain environments!

Last time we talked about the role of conviction and narrative in decision making - you can find all of our previous posts here.

This week:

• Topic: Our dangerous tendency to overcommit and tools to mitigate overconfidence

• Bias 11/50: Status Quo Bias

• Tool: Tripwires

Our dangerous tendency to overcommit and tools to mitigate overconfidence

Over the past two weeks, we talked about goal setting and OKRs (as a tool to drive alignment on decision making) and how ‘conviction’ is a very human attribute responsible for our irrational ability to almost will positive outcomes into existence; presumably against all odds.

Today we’ll cover the dark side of conviction and overconfidence - and unfortunately, the more common tendency to overcommit and hold on to our losses.

Confidence and resilience are hailed in scenarios where it all worked out, but it’s rare we recognize the many times it doesn’t work out - due to outcome bias, survivorship bias, and hindsight bias.

When systematic overconfidence might be good…

90%+ of startups fail in the first three years. 20% of all new businesses fail within the first year. Even within large organizations, 95% of new product releases or ‘innovations’ fail.

Should we stop starting new companies or chasing innovative ideas? No.

When systematic overconfidence is bad…

A study of 258 large transportation projects built between 1927 and 1998 in 20 countries found that 90% of projects were more expensive than expected.

On the other hand, 86% of construction projects exceed their initial estimate and cost an average 28% more than anticipated.

Should we do something to reduce the overconfidence that drives wildly inaccurate estimates and over-commitment? Yes!

We are systemically overconfident. There are plenty of studies that show consistent overconfidence in our abilities, but the most popular demonstration if the better-than-average effect is when we’re asked about our driving skills.

Research behind optimism bias, illusory superiority, and the dunning-kruger effect show that we’re often overconfident in both our abilities and the probabilities of positive outcomes - and we’re typically blind to it.

We’ve explored when conviction and ‘warranted’ overconfidence can be a good thing (particularly in radically uncertain environments), but can we effectively identify when it’s a negative factor and guard against its effects?

When do we need to mitigate overconfidence?

In the previous examples above, we had two very different scenarios.

Most founders believe their startup will succeed (against all odds) and if we believe there’s positive intent, most contractors don’t overestimate projects on purpose.

Can we differentiate between scenarios when confidence and conviction might be good vs bad?

Based on what we’ve gathered from a biases and heuristics perspective (all overconfidence is bad), from the naturalistic decision making perspective (it’s warranted in high-validity environments), and from the more nascent studies in environments of radical uncertainty (how would we ever do anything innovative without some overconfidence?!), we might end up with a mental model like this:

But in environments where conviction and overconfidence play a meaningful role in success vs failure, success is still the exception, not the rule - often due to factors not in our control (e.g. luck), but for the factors within our control, we lack the ability to adjust and respond to new information.

Even in scenarios where overconfidence is warranted (in this case, meaning there is a compelling hypothesis making up for a certainty gap), there’s a big risk that we’re on the slippery slope toward commitment bias.

Tools to combat overconfidence

The cognitive biases that create the lethal combination of overconfidence and overcommitment are self-reinforcing.

We tend to diverge too quickly (Anchoring bias, Availability Bias), immediately entrench ourselves (Confirmation Bias, Belief Bias), and hold on for too long (Commitment Bias, Sunk Cost Fallacy).

Shane Parish, founder of Farnam Street and a long-time researcher of decision making science describes conviction as powerful, but rare - as if there’s a sign that says “Break glass in case of radical uncertainty”

Annie Duke also covers this topic extensively in her book, Quit: The Power of Knowing When to Walk Away - exploring why we tend to stick to things far longer than we should. She challenges the intoxicating nature of ‘grit’ and ‘sticking with it’ and argues that quitting is a valuable skill when navigating uncertainty.

In many cases, we tend to focus more on signals that something is working rather than not working - even though the latter may be, more often than not, more meaningful.

In short:

• Conviction can be a powerful tool, but should be used sparingly

• Overconfidence and commitment bias are are like a riptide - often taking us too deep into trouble before we know it

• We need to utilize tools and techniques that help us spot when the efficacy of a decision has altered with new information

Below are a few tools highlighted by Annie Duke, among others, to help mitigate the effects of commitment bias and overconfidence:

• Kill criteria and ‘tripwires’: Tools for setting predefined thresholds that trigger the reevaluation of decisions - Annie Duke, Chip & Dan Heath

• Premortems: Taking a future perspective and identifying potential negative outcomes to proactively mitigate risk - Gary Klein

• Monkeys and pedestals: A framework for identifying and focusing on complexity over building false confidence with trivial tasks (bikeshedding) - Astro Teller

Let us know what you think! You can join the conversation on the thread in The Uncertainty Project. Want to build on or challenge these arguments? Submit a thread!

Bias 11/50: Status Quo Bias

Status quo bias is the tendency to prefer the current state of affairs over potential alternatives, even when the alternatives may be more advantageous. This bias arises from a combination of psychological factors, including a fear of change, a preference for familiar options, and a tendency to overvalue the current situation.

One of the primary ways status quo bias impacts companies is by limiting their decision-making processes. Managers and executives may be more inclined to continue with familiar strategies, products, or services instead of exploring new options that could yield better results. This aversion to change can lead to missed opportunities, stunted growth, and even the risk of becoming obsolete in an increasingly competitive market.

Status quo bias can also stifle innovation within a company. As leadership becomes entrenched in established processes and routines, they may be less likely to question their efficacy or consider alternative approaches. This can result in a stagnant culture that discourages creativity and prevents the development and implementation of new ideas that could drive the company forward.

This can also have systemic impact on change management. When employees are comfortable with the current state of affairs, they may be more resistant to organizational changes, even if these changes are necessary for the company's survival and growth. This resistance can delay or derail important initiatives, making it difficult for the company to adapt to new market conditions or capitalize on emerging trends.

To counteract the influence of status quo bias, it’s important for organizations to promote a culture of continuous improvement and learning - encouraging open dialogue, challenging conventional wisdom, and embracing a growth mindset can help employees become more receptive to change and foster a more adaptive work environment. Additionally, leaders should regularly evaluate their beliefs and decision making processes to ensure that they are not falling victim to the status quo bias themselves.

Tripwires

This technique was originally developed by Chip & Dan Heath in their book Decisive and adapted for The Uncertainty Project.

Tripwires are pre-determined signals or checkpoints that trigger a decision, review, or course of action when specific conditions are met. They act as an early warning system for potential problems or opportunities, and prompt us to revisit our decisions based on new information.

Why use tripwires?

Our brains are hardwired with various cognitive biases that can hinder our ability to make rational decisions - particularly when it comes to cutting our losses. Tripwires help us counteract these biases by forcing us to reassess our choices when specific conditions are met and overcome the effects of:

1. Confirmation bias: We tend to seek information that supports our existing beliefs and ignore contradictory evidence. Tripwires encourage us to question our assumptions and consider alternative perspectives.

2. Sunk cost fallacy: We often feel compelled to continue investing in a losing proposition simply because we've already committed resources to it. Tripwires prompt us to reevaluate our investments and consider cutting our losses.

3. Status quo bias: We have a natural inclination to maintain the current state of affairs, even when change might be beneficial. Tripwires help us recognize when it's time to consider new options or strategies.

Tripwires also reenforce healthy habits and offer several benefits that can improve our decision making processes, including:

1. Encouraging proactive planning: By setting tripwires, we're forced to think ahead and consider potential scenarios, which can lead to more robust strategies and contingency plans.

2. Reducing complacency: Tripwires remind us that our decisions may need to be revised or revisited as circumstances change, helping to prevent stagnation and encouraging continuous improvement.

3. Providing clarity and focus: Tripwires help us stay focused on key metrics and milestones, making it easier to measure progress and adjust our strategies as needed.‍

Getting started with tripwires

Before setting tripwires, determine which decisions or situations warrant their use. One such situation is when high stakes are involved. When the consequences of a decision are significant, tripwires can help ensure that you're avoiding overcommitment. Implementing tripwires in high-stakes situations enables you to stay alert to potential pitfalls and make adjustments as needed.

Tripwires are also helpful in high uncertainty, low validity environments. In situations where there's a lack of information or high levels of unpredictability, tripwires can act as a safeguard against unexpected changes. They provide a structured way to reevaluate decisions and adapt to evolving circumstances, ensuring that you're prepared for unforeseen challenges.

In any situation where commitment bias is a concern, tripwires help mitigate the self-reinforcing nature of the biases that cause us to become obsessed with ideas too early and hold on to losing bets for too long.

Determining effective tripwires

Consider the metrics and milestones that you will use to measure your progress. Choose quantifiable indicators that can signal when a tripwire has been triggered. These could include financial metrics, performance indicators, or project milestones, depending on the context of your decision-making process. Key results (tied to OKRs) can also act as tripwires or counter metrics.

Establish the thresholds and boundaries that will trigger your tripwires. Determine and document the specific values or conditions that, once met, will signal the need for action or reevaluation. These should be clear and actionable. If possible, create automated notifications (vis email, slack, etc...) that will inform you when these threshold or boundaries have been crossed

As you define your tripwires, keep in mind the importance of relevance and flexibility. Ensure that your tripwires are specific enough to incite action and flexible enough to account for potential changes in the environment. tripwires are not set in stone and should be revisited. Circumstances can evolve, and being prepared to adjust your tripwires as needed will help you maintain their effectiveness.

Lastly, don't forget that tripwires are only as effective as the actions they prompt. As you define your tripwires, consider the specific actions that will be taken in response to their triggering. This will help ensure that your tripwires lead to meaningful changes and adaptations in your decision making process.

Communicate and Implement Your Tripwires

Once your tripwires are defined, it's crucial to document and communicate them to the broader team. Be transparent about the purpose of the tripwires, how they were determined, and what actions will be taken when they are triggered. To successfully implement tripwires:

1. Embed them in your processes: Integrate tripwires into your decision making processes, quarterly planning, operations practices, and performance evaluations to ensure they are consistently monitored and enforced.

2. Regularly review and update: Schedule periodic reviews of your tripwires to ensure they remain relevant, effective, and aligned with your goals and objectives. It's easy for tripwires to become stale, so when possible, invest in automating an alert when the criteria are met.

3. Encourage a tripwire mindset: Foster a culture that values vigilance, adaptability, and continuous improvement, making it easier for individuals to recognize and respond to tripwires when they arise.

When a tripwire is triggered…

Effective tripwires are only as useful as your ability to respond to them. When a tripwire is triggered:

1. Pause and reassess: Take a step back to evaluate the situation and determine whether your original decision or strategy needs to be revisited.

2. Gather additional information: Investigate the reasons behind the tripwire being triggered and collect any new data or insights that could help inform your next steps.

3. Adjust your course of action: Based on your reassessment and new information, decide whether to maintain your current course, make adjustments, or pursue a completely different strategy.

Tripwires are a powerful decision making technique that can help us change and adapt in uncertain environments.

Implementing tripwires fosters a proactive mindset, promotes vigilance, and encourages continuous improvement, ensuring that decisions are revisited and revised as needed. By embracing this approach, decision makers can navigate complex situations and take on uncertainty with greater confidence.

We hope this post was helpful and interesting! Have feedback? Just reply to this email! It would be great to get in touch!