Kahneman, D. (2011).  The Outside View.  In Thinking Fast and Slow  (pp. 245-254). New York, NY: Farrar, Straus and Giroux.

The “outside view” and the “inside view” are terms coined by Daniel Kahneman and Amos Tversky referring to the processes people use in forecasting aspects of projects, such as, time to completion, likelihood of completion, and cost of project. The inside view is forecasting aspects of or the successful completion of a project based on the insider’s view. It tends to be overly optimistic or maybe it is overly confident in one’s own abilities. It tends to ignore outside information which might conflict with ones wishful or hopeful viewpoint.

Kahneman presented a wonderful example of he and his colleagues falling into this flawed forecasting method. They came together to write a textbook. Approximately two chapters and one year into the project, each individual of the group estimated how long it would take to complete the project. The consensus fell around two years (1.5 – 2.5 years). One colleague who knew several other groups who had undertaken the same type of project, estimated the same but when pressed as to how long the other groups he knew of took – he remembered it took them between seven and ten years to complete a textbook. Furthermore, approximately 40% didn’t complete their textbook project at all. And when pressed on their group’s level expertise as compared to the other groups – he estimated their group to be below the average. Nevertheless, the entire group decided not to weigh this information into a re-evaluation of their likely timeline and stuck with the two year estimate or forecast. Therefore, the original colleague who had this information and unintentionally chose to ignore it when making his original evaluation and then the entire group chose to ignore this baseline statistic for any further forecasting of their likely timeline to complete their project.

The outside information that the colleague had about similar groups and projects was the type of information later coined the outside view. It is a baseline statistic one can use to start from when attempting to forecast one project based on the outcome of other similar projects. This is a statistical estimate of the field from which to estimate in one direction or another (longer, more expensive, more complications likely, etc.). The colleague said their group was below average as compared to the other text writing groups of which he knew. Therefore, the logical estimate from the baseline seven to ten year estimate would be slightly longer than those other groups, if they completed at all since there was only an approximately 40% success rate.

Kahneman’s text writing group’s project ended up taking eight years. He refers to the miscalculation  of two years to competition as an extremely optimistic forecast for the project. It may possibly be a case of over confidence in one’s own capabilities, as well.  Possibly they felt they were far superior to the other groups, of whom they were not personally familiar. Whatever the underlying reason, Kahneman refers to this as a “planning fallacy”. A tendency to forecast more of a “best-case scenario” or he says, even a “delusional” forecast. He refers to an “irrational perseverance” to continue the project against all odds, rather than embarrass themselves for starting a project which they might not be able to complete. Kahneman breifly refers to the “sunk-cost fallacy” when decisions to continue on a projects are unwittingly based on the amount of financial, temporal, and emotional investment that has gone into the project already, rather than the logical future probability of success . Kahneman ended up moving and not participating in the completion of the project but some of the other team members did see it out to the end, despite the fact that the funding agency lost interest and never ended up using the text.

Nevertheless, the experience guided Kahneman’s research and likely contributed to his Nobel prize in economics. He is now a strong advocate of baseline statistics and has had first hand experience that despite your knowledge, you may still fall prey to ignoring the baseline statistics available when making predictions. It also shows how people can be overly optimistic in their own likelihood of success. People can have an underlying feeling that if they just want something bad enough and work hard enough, they can make it happen. This is an American saying – “ you can do whatever you put your mind to.” Unfortunately, the reality is that ignoring the many other variables that are unpredictable or even unfathomable doesn’t guarantee success.  Kahneman also mentions certain fields where people may want to believe they are a “special case” and no previous case can predict their outcome, such as law and medicine. It may be necessary to provide the helpless with hope and in rare cases it may turn out in their favor.