When Not to Trust Your Gut (HBS Working Knowledge)

"When deciding whether to start a new business, entrepreneurs should use their outsider lens to critically and comprehensively analyze negotiations over land, construction, hiring, and so on. Yet overconfidence remains the norm; in a study by Arnold Cooper of Purdue University, Carolyn Woo of Notre Dame University, and William Dunkelberg of Temple University, more than 80 percent of entrepreneurs estimated their personal chances of success to be 70 percent or higher; one-third of them described their success as certain. If these entrepreneurs adopted the outsider lens, as Kahneman and Lovallo suggest, they easily would find out that the five-year survival rate for new businesses is only about 33 percent!"

"Many intelligent people stake their reputations, large sums of money, and years of their lives on negotiations based largely on intuition and overconfidence. The strong urge to view the world—and ourselves—in a positive light can powerfully affect our decision making in negotiation. "