Take the Outside View

Taking the outside view is a shorthand and colloquial way to say, think of the base rate of the reference class to which something belongs, and make judgements and predictions from that starting point. Take the outside view is advice from Daniel Kahneman in his book Thinking Fast and Slow for anyone working on a group project, launching a start-up, or considering an investment with a particular company. It is easy to take the inside view, where everything seems predictable and success feels certain. However, it is often better for long-term success to take the outside view.

 

In his book, Kahneman writes, “people who have information about an individual case rarely feel the need to know the statistics of the class to which the case belongs.” He writes this after discussing a group project he worked on where he and others made an attempt to estimate the time necessary to complete the project and the obstacles and hurdles they should expect along the way. For everyone involved, the barriers and likelihood of being derailed and slowed down seemed minimal, but Kahneman asked the group what to expect based on the typical experience of similar projects. The outlook was much more grim when viewed from the outside perspective, and helped the group better anticipate challenges they could face and set more reasonable timelines and work processes.

 

Kahneman continues, “when forecasting the outcomes of risky projects, executives too easily fall victim to the planning fallacy. In its grip, they make decisions based on delusional optimism rather than on a rational weighting of gains, losses, and probabilities. They overestimate benefits and underestimate costs.”

 

Taking the outside view helps us get beyond delusional optimism. It helps us make better expectations about how long a project will take, what rate of return we should expect, and what the risks really look like. It is like getting a medical second opinion, to ensure that your doctor isn’t missing anything and to ensure they are following the most up-to-date practices. Taking the outside view shifts our base rate, anchors us to a reality that is more reflective of the world we live in, and helps us prepare for challenges that we would otherwise overlook.

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