Not having the courage to quit was "one of the most idiotic things" he ever did, Nobel laureate and a highly regarded economist and psychologist Daniel Kahneman told Moneycontrol in an interview in 2023. Kahneman, who laid the foundation of behavioural economics, died on March 27. He was 90.
Kahneman was explaining the importance of "inside view" and "outside view", and illustrated it using his experience with drafting a curriculum for high schools on judgement and decision-making without mathematics.
In his book Thinking, Fast and Slow, he talked about it to stress the importance of getting an outsider's perspective to more realistically gauge outcomes and improve decision-making.
While writing the book, he found that his decision to persevere with the curriculum despite the poor prognosis given by the "outside view" was one of his biggest mistakes, Kahneman told Moneycontrol.
How did it play out?
To work on the curriculum, Kahneman had enlisted several groups of people dealing with that, including teachers and a statistician and the chairman of the education department of the School of Education at Hebrew University. They worked for about a year and they would meet every Friday and were making decent progress.
One Friday, he decided to check with the team on when they thought they could deliver the book. He asked everyone to make an independent judgment and write it on a slip of paper. Then, he collected the slips and found that all, including him, had estimates between one and a half and two and a half years.
That was the “inside view”.
Read the full interview here: Daniel Kahneman on why optimism is as bad as pessimism, when to call it quits and other insights into decision-making
Outside view
Kahneman asked the chairman of the School of Education, an expert on curriculum development, for an “outside view' since he chairman had seen other teams attempt the same task.
Kahneman asked him if he could think of other cases in which people tried a similar project and the level of success they saw.
The chairman said that not all of them finished the book. He estimated that about 40 percent of them never finished the book. Those who did took not less than eight years to finish the curriculum book.
The chairman gave the “outside view” on the success of their project.
Kahneman pointed out to the contrast in the “inside view” of the team and “outside view” offered by the chairman.
He said, "We know how well we are doing and we extrapolate and take a margin and so on. The outside view is to forget about us, look at problems like ours and what are the statistics of problems like ours? And it turns out that the outside view leads to a completely different conclusion."
The chairman also said that Kahneman's team was actually below average, though not by much, when compared to the others who had attempted similar projects.
Planning fallacy
The economist told Moneycontrol that the experience led him to introduce the concept of “inside view” and “outside view”. He said that this — poorly estimating your chances — is a very general phenomenon. It was called the planning fallacy.
He said, " I discovered that this was one of the most idiotic things I ever did — not for asking the question — but what I did after that."
He added, "Obviously, we should have quit (abandoned the curriculum project). None of us was prepared to spend seven years with a 40 percent chance of failing, and we had no reason to believe that we were above average. We should have quit and we didn't, even though we had both the outside view and the inside view. I didn't have the courage to quit."
In Thinking, Fast and Slow, Kahneman wrote, "Facing a choice, we gave up rationality rather than the enterprise".
He wrote that the school book was eventually completed after eight years but by when the enthusiasm of the Ministry of Education had waned and the textbook was never used.
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