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Choiceology: Season 8 Episode 3


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We often overestimate our abilities and the accuracy of our predictions. Is it better to have well-calibrated confidence beliefs?

When young children imagine their future lives, they’re often very optimistic. They’ll say things like “I’m going to be an astronaut!” or “When I grow up, I want to be a movie star!” These outcomes are, of course, quite rare. Most children will grow into slightly less exotic careers as adults. But even as adults, we tend toward personal optimism. We assume that we will outlive the average person, that we will remain in better health than the average person, and that our children will be above average in school or in sports. Of course, we can’t all be above average.

In this episode of Choiceology with Katy Milkman, we look at the mistakes we make when we assume we’re less susceptible to failure or negative outcomes than are other people.

World’s Fairs are large scale events requiring an immense amount of planning and organization. And while there have been many memorable and successful fairs, there have also been many expensive failures. Robert Rydell tells the story of the 1926 Sesquicentennial International Exposition in Philadelphia. Organizers were certain that they could mount a spectacular event, one that would transform their city and burnish its reputation around the world. But international events, poor weather, local politics, and the death of one of the key planners would conspire to make this a fair to remember, for all the wrong reasons.

Robert Rydell is a professor of American Studies at Montana State University and the author of All the World’s a Fair: Visions of Empire at American International Expositions, 1876-1916.

Next, Don Moore joins Katy to discuss the ways in which overconfidence, overplacement, and overprecision can cloud your judgement, even though it may make you feel better about yourself and your abilities.

Don Moore is the Lorraine Tyson Mitchell Chair in Leadership and Communication at the UC Berkeley Haas School of Business and serves as associate dean for academic affairs. He is also the author of the book Perfectly Confident: How to Calibrate Your Decisions Wisely.

Finally, Katy offers advice on using base rates to help offset over-optimism when it comes to planning events, starting a business, getting married, or renovating your home.


Choiceology is an original podcast from Charles Schwab

If you enjoy the show, please leave a rating or review on Apple Podcasts.

Click to show the transcript

Speaker 1: Everyone is coming to the World’s Fair. They’re coming from the four corners of the earth and from Five Corners, Idaho.

Speaker 2: 1939, the New York World’s Fair. 1904, the St. Louis Fair. 1889, the Paris International Exposition.

Katy Milkman: As you’ve probably guessed from those archival clips, we’re talking about World’s Fairs in this episode. While many of these fairs have ushered in new eras of technological achievement, produced iconic structures, and burnished the reputations of their host cities, many didn’t live up to the hype. Coming up, you’ll hear about the grand designs and less-than-grand reality of one particular World’s Fair, and I’ll speak with behavioral scientist Don Moore about a group of biases that can lead us to take unwise risks.

I’m Dr. Katy Milkman, and this is Choiceology, an original podcast from Charles Schwab. It’s a show about the psychology and economics behind our decisions. We bring you true stories involving high-stakes moments, and then we explore the latest research in behavioral science to help you make better judgments and avoid costly mistakes.

Robert Rydell: Think mass spectacle. Think nation branding. Think huge mega events, massive exhibition pavilions.

Katy Milkman: That’s Robert Rydell, a professor of history at Montana State University whose research focuses on World’s Fairs.

Robert Rydell: The term “World’s Fair” will signify a kind of mass outdoor spectacle with lots of exhibits that are entertaining, some educational. The World’s Fair is not a trade show, but it certainly does have commercial exhibits attached to it.

Katy Milkman: The first World’s Fair was in London in 1851, with hundreds more following in the years since. These mega events are typically designed to showcase the cultural, technological, and scientific achievements of different countries. Television, x-rays, telephones, cars, and zippers are just a few of the innovations introduced and popularized at World’s Fairs.

Robert Rydell: Basically, if you look around your house, if you look around your apartment, almost any piece of technology you touch probably had its debut or near-debut with one of these World’s Fairs. They’re terrifically important for understanding the history of technological innovation.

Katy Milkman: They’re also an opportunity to put a host city on the map and earn some bragging rights. In the U.S., 100 million people attended these fairs between the first one in Philadelphia in 1876 and World War I, and millions more attended American expositions in the years that followed. While they were generally popular attractions, the ticket sales to these events were often not enough to offset the massive cost of building and running the fairs.

Robert Rydell: It’s interesting because people will often just be interested in bottom lines, so did a fair make money or didn’t make money? And usually the way that answer gets reported out is off of income from gate receipts. Most fairs really don’t make money off of the attendance alone.

Katy Milkman: Of course, host cities benefit from other aspects of the fair. There’s tourism, real estate and infrastructure development, hotels, and more. But even fairs that are thought to be successful often don’t end up in the black.

Robert Rydell: Philadelphia had held a massive exposition back in 1876 for the centennial, and it doesn’t make money off gate receipts. It loses money. But the centennial left overwhelmingly positive feelings among, and I’ll emphasize this, white Philadelphians. The fair made people feel that the investment of time and money had really been worthwhile.

Katy Milkman: That positive experience led one of the organizers to advocate for another fair many years later.

Robert Rydell: John Wanamaker, don of a famous department store, looked ahead and thought, “Well, we can actually hold another. We should hold another event like the centennial for the sesquicentennial.”

Katy Milkman: Philadelphia had grown dramatically in the years since 1876, but it had also come to suffer from high levels of corruption. John Wanamaker was the only living member of the Centennial Exposition’s finance committee, and he believed that another fair could help restore Philadelphia’s reputation. In a 1916 newspaper column, he wrote, “Are there any sons left of those who toiled in old times to make the city head the list, willing to take off their coats and go to work for a great future of Philadelphia?”

Wanamaker felt that a 150th anniversary, or sesquicentennial celebration, would return Philadelphia to its core values of honesty, industry, and patriotism.

Robert Rydell: 1926 is the date we’re going to hold a fair. We’re going to call it the Sesquicentennial Exhibition, nicknamed the Sesqui. This will be a national focal point for yet another American national civic celebration. What better place to do this than the city of brotherly love, Philadelphia?

Katy Milkman: Wanamaker earned some local support to start the planning, but the initial efforts were delayed due to World War I. Shortly after the war, the city was struck with Spanish influenza. But Wanamaker was undeterred. He was interviewed in July of 1919 and was quoted as saying, “No nation in the world has today such an opportunity to hold a sesquicentennial in 1926, which should cover not less than 300 acres at Fairmount Park and make an astounding presentation of the capacity and productive power of the United States.”

That very optimistic outlook would soon be put to the test again. The Prohibition Era began in 1920. The prohibition of alcohol aggravated a recession that was already underway by shutting down dozens of Philadelphia breweries and throwing thousands of people out of work. It triggered a wave of crime, as bootleggers and gangsters began to fill the demand for illegal alcohol. It was not a good time for the city I call home, but the plans to hold a World’s Fair went ahead. John Wanamaker revived the efforts that had stalled during the war.

He claimed that the fair would be a way to advance America’s growing influence and international affairs and help mend the bond that had frayed during the war years. Finally, in 1921, Philadelphia was officially appointed as the host city for the 1926 World’s Fair. President Warren G. Harding signed a resolution in 1922 to approve the international exhibition at Fairmount Park and Parkway.

The president was surrounded by a who’s who of smiling Philadelphia VIPs at the signing, but almost immediately, the mood shifted when reporters showed the guests the afternoon papers from Philadelphia. The headline read: “A Protest.” It was an open letter from the North Philadelphia Manufacturers Association, a group of 30 large employers, who opposed the exposition because they were afraid that it would have a negative impact on “the industrial and civic welfare of Philadelphia.”

Robert Rydell: There’s always opposition. Oftentimes, you don’t hear about it. It’s censored. It’s canceled out of later conversations, because the organizers don’t want it to be remembered. But a couple of things about these expositions—they require public funds. And in an American context, that means taxes. So questions about who’s going to pay. Other questions, who’s going to benefit?

Katy Milkman: A world war, a recession, prohibition, corruption, political opposition, Wanamaker believed the fair could overcome all of these obstacles and rejuvenate a stagnating city. But then John Wanamaker faced the ultimate obstacle: his own mortality. He died on December 12th, 1922, at the age of 84. While the planning committee declined to comment on the future of the fair, many felt that the Sesquicentennial International Exposition would be abandoned.

But the committee went ahead with its plans, inspired by the high hopes of John Wanamaker’s vision for the fair. Planning continued in fits and spurts until around 1925.

Robert Rydell: The Philadelphia fair involved a lot of talk, a lot of political dispute over who gets to make decisions, who’s going to be on committees, where the fair is going to be sited. And about a year and a half before the fair is scheduled to open, there’s a sudden realization that this thing has to be built. They wasted a lot of time.

Katy Milkman: Philadelphia Mayor W. Freeland Kendrick was determined to proceed with the plans and to open the fair on time. In 1925, Kendrick oversaw a banquet of Philadelphia’s elite to sell $3 million in Sesqui bonds. According to Mayor Kendrick, the proceeds would allow the planning committee to create a World’s Fair “without parallel in comparison to other expositions.” While the bond sale raised considerable funds, organizers were late in breaking ground on the site. By 1926, there was a mad rush to try to get everything ready in time. Organizers were overwhelmed. In fact …

Robert Rydell: As opening day got closer, one of the directors of the fair just basically collapsed and died. There was so much pressure on him. Things were not going well. Buildings were not ready. The mayor, who was sort of the main promoter of the fair, could have postponed, but the mayor was just a stubborn son of a gun, and he just decided, come hell or high water, it’s going to open on May 31st.

Katy Milkman: Opening day arrived. May 31st, 1926. Excitement was in the air. Unfortunately, so were the clouds.

Robert Rydell: And the rain hits, and the gardens are washed out. The concrete isn’t set for many of the floors. Newly painted buildings have the ... the paint is basically washed off. The opening was just an unmitigated, smashing failure from the standpoint of what most promoters of a fair would want.

Katy Milkman: It was estimated that just 250 people attended on the first day. And out of the 184 days the fair was open, it rained for 107 of them. This was not ideal for attendance figures. Of course, poor weather is just bad luck, but the planners did have control over the design of the fair and the exhibits. Most World’s Fairs are designed with an eye to the future. The Sesquicentennial was instead a recreation of days gone by.

Robert Rydell: Sesquicentennial really wanted to take people out of the present and really have them imagine what it was like in the past.

Katy Milkman: As fairgoers walked through the opening gate, the focus on the past was evident. The main gate itself was an 80-foot-tall replica of the Liberty Bell.

Robert Rydell: The Liberty Bell, with the scaffolding still around it, so that’s not a good sign. But then you turn around and walk through the entrance, and you’re on the fairgrounds. A lot of people bee-lined it to the amusement section of the fair for the roller coasters, some of the different concessions. Other people were really taken in by the gardens. Other people, big art exhibit in the Palace of Fine Arts.

The sort of centerpiece, the big takeaway architecturally, is a section of the fair called High Street, which is all about colonial revival architecture and rebuilding structures from Philadelphia’s colonial past.

Katy Milkman: One of the largest pipe organs in the world was also built specifically for the Sesqui. It had over 10,000 pipes. And for the first time, sound was amplified in public spaces on a mass scale.

Robert Rydell: One of the real attractions of the fair was just listening to the loudspeakers because this was the first time we had amplified sound in public spaces on a mass scale. And not only could you hear public announcements, you would hear people reading, telling people what was going on, you could also hear music. And that was transformative in the way of a kind of modern culture began to take form in the United States and elsewhere.

Katy Milkman: But the biggest draw of the fair was the boxing match between world heavyweight champion Jack Dempsey and Gene Tunney.

Robert Rydell: The boxing match was really quite extraordinary in the Sesqui stadium. About 120,000 or so packed in for the Tunney-Dempsey fight. It was September 26. It was outdoors. Took place probably 8:00, 9:00 at night. The stadium packed. Very expensive tickets. Can you imagine 120,000 people, only a handful were close enough to see the fight? Those in the cheap seats, upper rows of this stadium, what they can see are a lot of lights, but what else they experienced that everyone else experienced was torrential rain.

It rained from the second round through the 10th round. It just poured. It knocked out electricity. A lot of people really didn’t know who had won the flight until the next day. Tunney won in 10 rounds on a decision and is crowned the heavyweight champion, but it was just a complete disaster for the exposition in terms of its publicity.

Katy Milkman: The 120,000 people who showed up for the fight didn’t do much to offset the poor attendance from all the rain and negative publicity. The fair organizers had projected 25 million attendees. But by the end, only 6 million people came.

Robert Rydell: Of those 6 million, only 4½ million actually paid to get in. The fair was also notable in number of complimentary passes that they gave out, because so few people were coming. The attendance was really very, very small and didn’t begin to cover costs.

Katy Milkman: And those costs were significant.

Robert Rydell: It’s always hard to get precise numbers, but the closest I’ve been able to come up with is right around $23 million in 1926 terms. There are some other accounts as well that put the figure closer to $20 million.

Katy Milkman: That’s an overall cost of between $300 and $350 million in today’s dollars.

Robert Rydell: It was huge. The fair was left with a deficit of about $5 million. And again, this is 1926, so bring out your inflation calculator.

Katy Milkman: That deficit would be about $76 million in today’s dollars.

Robert Rydell: That’s a huge chunk of money that the city is basically on the hook for, but they paid off the debt. And the way they do that is by dipping into city coffers, and that means they have to make decisions about where money goes, to pay off debt or to city services.

Katy Milkman: Philadelphia had just finished paying off the debt from the Sesquicentennial in 1929.

Robert Rydell : 1929, that was not going to be a glorious year for Philadelphia, the rest of the country, or the world by the time it got to its close.

Katy Milkman: 1929, of course, marking the beginning of the Great Depression.

Robert Rydell : This fair was, by the time it was over, routinely decried in the national press as absolutely the last World’s Fair the United States would ever hold. It was so disastrous. It was so traumatic. And then what happens? 1929, followed by a string of World’s Fairs during the Great Depression, Chicago Century of Progress, 1939-1940 New York, the Dawn of a New Day, the World of Tomorrow. My takeaway from the Sesquicentennial is be very skeptical of anyone who tells you that there’ll never be another World’s Fair, that their time is over.

Katy Milkman: Robert Rydell is a professor of history at Montana State University and the author of several books about World’s Fairs, including All the World’s a Fair. You can find links in the show notes and at

By the way, the next World’s Fair is coming up in October of 2021 in Dubai, after having been delayed a year by the coronavirus pandemic.

World’s Fairs can be exciting, pivotal, reputation-enhancing events for many cities. They can also be boondoggles. Mega events like World’s Fairs or Olympics or World Cup Soccer can provide much needed infrastructure and development, but they’re also often plagued with budget overruns and costly delays. In fact, according to a study on mega events, the Olympic Games have gone over budget on average by 179% since 1960. And while there are many factors that affect the success or failure of these complex events, a common feature is optimism. We overestimate how well things will go and under appreciate all that could go wrong.

John Wanamaker, Mayor Kendrick, and other organizers felt the Sesquicentennial would solve many of Philadelphia’s ills. Optimism often leads us to believe that we are less likely to suffer from misfortune and more likely to attain success than reality would suggest. It leads people to mis-predict the likelihood of events that might get in the way of their plans.

In my MBA classes at Wharton, I often test this tendency with my students, first asking them to answer a series of questions, and then asking them to predict how confident they are that their answers are correct. We ran this test with some volunteers. See if you can spot the problem with their levels of confidence.

Speaker 5: OK, so I have a short list of questions. But instead of guessing the answers, I want you to think of a range that you’re 90% confident it includes the right answers for each question. So first, I’d like you to give me your 90% range for the diameter of the moon measured in miles.

Speaker 6: OK. It’s a lot smaller than the earth. I’m going to go between 500 and 2,000.

Speaker 5: And you’re quite confident that the right answer is included in there?

Speaker 6: Pretty sure it’s about that.

Speaker 7: The moon, I’m just guessing here, between 800 and 1,200 miles.

Speaker 5: The diameter of the moon is 2,159 miles.

Speaker 7: Oh, I was optimistic.

Speaker 5: What’s your guess for the lower and upper limits of the maximum fuel capacity in a Boeing 747, measured in gallons?

Speaker 6: I mean, those are big planes. They do need a lot of fuel. Let’s go between 100 and 1,000.

Speaker 7: A Boeing 747 airplane maybe can hold between 500 to 600 gallons.

Speaker 5: The maximum fuel capacity of a Boeing 747 measured in gallons is 57,285.

Speaker 6: What? OK. Who knew? They’re huge.

Speaker 7: I was way off.

Katy Milkman: As you can see, our volunteers were generally poorly calibrated. This happens to Wharton MBA students, undergraduates, volunteers online, and really any population you ask. We’re far more confident in the precision of our estimates than is justified. So why does this happen? You may remember from our very first episode that overconfidence can cause significant errors in judgment. And from our episode on the planning fallacy, you might recall that optimism can blind us to the amount of time, money, and effort our endeavors require.

We wanted to dive a little deeper into this family of biases, so we asked Don Moore back to the show to share his knowledge. Don is a leading expert on different types of optimism and overconfidence, and he joined me to talk about the various ways that these biases can affect our decisions. Don is a professor of management and organizations at the University of California at Berkeley’s Haas School of Business.

Hi, Don. Thank you so much for joining me today.

Don Moore: Hey, Katy. It’s a pleasure to be with you.

Katy Milkman: I am wondering if you could first tell me a little bit about overestimation. What is that bias, and where does it come from?

Don Moore: Overestimation happens whenever people think that they will do better than they actually do, when they overestimate their abilities, when they think that they’ll get work done faster than they actually will. And it is likely to happen to us when we’re planning something complicated, where there are lots of ways that it could go wrong. And many of those have low probabilities, but collectively, the joint probability that one of those low probability things is likely to go wrong—that probability adds up to be very high.

It’s easy to neglect that, and the virtual certainty that there will be unanticipated problems with a big project.

Katy Milkman: One of the things I love about all of the research on overconfidence that you and other people do is that there all of these different subtleties to it, all these different pieces to what adds up to overconfidence in different parts of our lives. I want to unpack those. I was hoping, in addition to talking about overestimation, you could tell us a little bit about another form of this bias, which is overprecision.

Don Moore: Overprecision happens when you’re too sure you are right, too sure about the accuracy of your knowledge, or you have excessive faith that you know the truth. It happens sometimes when people think that they’re going to get something done faster than they are. But at the same time, they are overprecise in that estimate, being too sure that they have correctly estimated how long it’s going to take, and therefore hedge too little against the risk inherent in overpromising. They will over-commit to too many projects.

I see this showing up on my to-do list, when I commit to something in the future, when I’m sure I’ll have plenty of time. And then by the time the future arrives, I’m just as busy as I was when I thought I would have more time in this future. And so I’ll wind up over-committing to projects in the future and have a long to-do list that necessarily involves disappointing some of those people I’ve made commitments to.

Katy Milkman: Oh my gosh, that is way too close to home. Let’s get into another really interesting kind of overconfidence, overplacement. Could you define overplacement and describe how it differs from overprecision?

Don Moore: Yeah, that’s an easy one. Overplacement is all about beliefs about your placement relative to others. Are you better or worse than others? And it is quite distinct from overprecision. In my research studies, I routinely find people underplacing themselves, but being overprecise. And that happens when, for instance, I give my students some hard task and they think, “Oh, I’m not going to do as well as others on this.” When, for instance, I asked my MBA students, “Give yourself a percentile rank relative to all the other students in the class on your juggling ability. How sure are you that your percentile rank falls in each of the 10 possible deciles, for instance?” I’ll get them telling me they’re really sure they’re in the bottom decile, where the median person thinks they’re down below the second decile, the 20th percentile. They’re giving themselves really low percentile rankings. “I’m worse than the other students in this class at juggling.” Well, that can’t be right. They’re all terrible at juggling. So, on average, of course, the median splits the class.

And on average for a regular distribution, on average, the average student will be average. But they feel incapable at this difficult task, and so on average report that they’re worse than average and are too sure of that mistaken impression. This is, by the way, an instance of the imposter syndrome, where capable people, who are, in this case, people struggling with a difficult task, all think that they don’t have what it takes.

And so many of us encounter this self-doubt when we are thrown into some new challenging task, a new job or a difficult assignment, where we wonder whether we’re the right person for the job and whether someone else might be better at it, when in fact, it’s a challenging task that’s tough for everyone.

Katy Milkman: I love that you started talking about underconfidence or underplacement and imposter syndrome because it’s really interesting. And you’ve done this really interesting research showing that even though the general finding was, “Oh gosh, people are overconfident, they exhibit overplacement, they think they’re better than average on lots of things,” you’ve shown that it depends on what kind of task it is. Could you say a little bit more about what it depends on? When do we think we’re going to be better than average on average, which is impossible, and when do we think we’ll be worse than average on average, which is also impossible?

Don Moore: The big moderator there is task difficulty. If it’s a task where most people feel competent, they think they have what it takes, on average, you will get people reporting that they’re better than average. And most people place themselves above the median. The most celebrated finding in this literature is Ola Svensson’s 1981 finding that 93% of American drivers think that they’re better than the median. That can’t be true. Interestingly, that effect even holds among drivers in the hospital because of an automobile accident.

On the other hand, when you’ve got something hard, people tend to underplace systematically. One important area in which this shows up, the difference between overplacement and underplacement, has to do with entrepreneurial entry. There are massive differences between industries with regard to entry rates.

In industries where there are a lot of people who think, “Yeah, I can do that,” think restaurants, liquor stores, hobby shops, clothing retail, these are industries with higher rates of entry, ruthlessly difficult competition, low profitability, and high rates of failure. On the other hand, in industries where there are fewer people who think they have what it takes, you see less intense competition and higher profitability, by and large.

Katy Milkman: It’s so interesting to hear about these differences and when we exhibit overplacement and underplacement. I know overplacement is a big issue and many would argue one of the most pernicious biases. In fact, I’ve heard Nobel laureate Danny Kahneman say, if there was one bias he could get rid of, this is the one, the fact that we think often easy tasks or tasks we’ve mastered we’re better than average. Could you talk a little bit more about the research on that phenomenon and why it’s so sticky and harmful?

Don Moore: Yeah. Overplacement is more dangerous than underplacement. Both are errors, but overplacement leads us to enter competitions that we will lose, take risks that won’t pay off well, make asses of ourselves by stepping out and taking public stances or showing off in ways that other people do not appreciate as much as we think they will. Underplacement, on the other hand, leads us to shrink back to avoid competition, to stay out, not to put ourselves forward, and the loss there is a missed opportunity, an opportunity loss.

Whereas the errors we make due to overplacement are errors of commission, where we wind up investing, taking risks, taking stances, or entering competitions that won’t turn out well.

Katy Milkman: They can be costlier and more humiliating.

Don Moore: Yes, indeed. Your question gets at what to do about it, asking yourself why you might be wrong is one of the most useful and general-purpose debiasing strategies identified in the social psychology and decision-making literatures. So, if you think you know how you will perform at something, if you think you know how you place relative to others, consider the alternative. It’s hard for you. How hard is it for other people? And consider gathering more information where you can.

If you’re experiencing the imposter syndrome, if you’ve taken some new job or some new assignment, and you’re struggling with it and wonder if other people are better suited for this job than you are, well, consider talking to those other people, or consider talking to people higher in the organization who’ve made it past the challenges that you are facing. Did they also experience those feelings of inadequacy at the beginning?

Getting that information can help put your challenges in perspective and help reduce the error and increase the quality of the information you have at your disposal.

Katy Milkman: That’s great. I want to go back to the more commonly raised biases about optimism and overprecision and overplacement, overconfidence more generally, and actually just push back and ask, why should we want to debias if we fall into those buckets, right? If it’s not the imposter syndrome, if we instead are thinking, “I’m better than I really am, and I have more precise information than I really have,” but maybe if we don’t take risks and we don’t put ourselves out there, we also never accomplish anything. Is it really better to be perfectly calibrated? Is it really better to be less confident?

Don Moore: Lots of people react to my encouragement to be well-calibrated in their confidence beliefs by protesting that it’s good to be optimistic, and we should believe in ourselves. Self-efficacy depends on faith that we can succeed and get it done. And that without that faith in ourselves, exactly as you point out, we might be apprehensive about entering competitions that we could win.

It does feel good to be confident, but beware the dangers that lie there, and don’t fool yourself into thinking that more confidence is better and that it will guarantee success. It is a dangerous strategy that comes with real problems.

Katy Milkman: Don, thank you so much for taking the time to talk today. I really appreciate it.

Don Moore: Thanks, Katy. The pleasure was mine.

Katy Milkman: Don Moore is the Lorraine Tyson Mitchell Chair in Leadership and Communication at the UC Berkeley Haas School of Business and serves as associate dean for academic affairs. He’s also the author of the book Perfectly Confident: How to Calibrate Your Decisions Wisely. I have links in the show notes and at

With the exception of a brief bear market at the start of the COVID crisis, we’ve been in a bull market for the better part of a decade. That’s an environment that naturally breeds optimism among investors and traders. If you’re wondering how you might mitigate overconfidence and other biases when trading stocks, check out the Financial Decoder episode titled “How Can You Manage Your Emotions While Trading?” You can find that episode and others at or wherever you get your podcasts.

Optimism bias often causes us to overestimate our abilities, the accuracy of our predictions, and the likelihood that complex endeavors will succeed. As you might remember from our episode on the planning fallacy, we often assume that we’ll finish projects much faster than we actually do. Don Moore recommends the strategy of challenging your own confidence by asking yourself how you might be wrong and looking for more information outside of your perspective.

For people planning a large, complex event, there’s another simple strategy recommended by Nobel laureate Daniel Kahneman. Kahneman proposed that another key way to gain a broader perspective on your estimate is to look for base rates. Look for existing statistics from similar situations that give you data against which to compare your estimates.

For example, if you’re considering opening a new business, taking a look at the base rates of success in that industry, in your region for people like you, could help you better understand the degree of risk you’re actually taking. When undertaking any new endeavor, from marriage to home renovation, it’s helpful to get a sense of how things tend to go for others on average, before you blindly assume you’ll have a terrific outcome. The goal isn’t to be a downer, but rather to go in with your eyes open.

You’ve been listening to Choiceology, an original podcast from Charles Schwab. If you’ve enjoyed the show, we’d be really grateful if you’d leave us a review on Apple Podcasts. You can also follow us for free in your favorite podcasting app. And if you want more of the kinds of insights we bring you on Choiceology about how to improve your decisions. You can order my new book, How to Change: The Science of Getting from Where You Are to Where You Want to Be, or sign up for my monthly newsletter, Milkman Delivers, at

Next time, you’ll hear from two food truck entrepreneurs who found success the hard way, and I’ll speak with behavioral scientist Abby Sussman about how our categorization of exceptional events can produce biased decisions. I’m Dr. Katy Milkman. Talk to you soon.

Speaker 9: For important disclosures, see the show notes or visit


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