Why Take The Outside View?

The outside view is a decision-making technique that involves considering the past experiences and outcomes of similar situations, rather than focusing solely on the details of the current situation. The idea of “outside view” was developed by Daniel Kahneman and Amos Tversky and typically refers to the processes people use in forecasting aspects of projects (time to completion, likelihood of completion, and cost).

This approach has been shown to lead to more accurate predictions and better decision-making in a variety of contexts. In this article, we will explore why taking the outside view is important and how it can be applied to various aspects of life.

Reducing Bias and Improving Accuracy

One of the key benefits of taking the outside view is that it helps reduce bias and improve the accuracy of predictions. When we focus solely on the details of the current situation, we are more likely to be influenced by our emotions, personal biases, and preconceived notions. This can lead us to make decisions based on incomplete or inaccurate information, which can have negative consequences.

On the other hand, the outside view forces us to consider the experiences and outcomes of similar situations, providing a more comprehensive picture of what to expect. By looking at past experiences, we can gain a better understanding of the likelihood of success or failure, allowing us to make more informed decisions.

Amos Tversky was working on developing a textbook with a group of people. At the start of the project, he asked everyone how long they thought it would take. Most estimates were about 2 years. He followed up with the group member who worked on projects like this frequently and asked how long a typical textbook development takes. The group member sheepishly admitted it usually takes 7–10 years and a lot of groups never finish. He hadn’t baked any of this into his estimate for this project even though he knew better.

The question Amos asked was, “what is the base rate”? Stated differently, what has the outcome been in similar situations in the past? Without any other information, this would be the best possible guess. If you don’t have experience with something, you better have a really good reason for why you think something will go significantly different from the typical historical outcome.

Enhance Emotional Resilience

In addition to improving the accuracy of predictions, taking the outside view can also help enhance emotional resilience. When we focus solely on the current situation, it can be easy to become overwhelmed by emotions and stress. This can negatively impact our ability to make sound decisions and can lead to negative outcomes.

“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. You must supply the emotional discipline.” — Warren Buffett

The outside view provides a perspective that helps us to step back from the emotions of the current situation, allowing us to make more level-headed decisions. By considering the experiences and outcomes of similar situations, we can better understand the context and potential challenges, allowing us to approach the situation with greater emotional resilience.

“This too shall pass.” — Abraham Lincoln

Any situation we are in is rarely as good or bad as we perceive it to be and is seldom as permanent as we imagine. Putting it in the proper context can often make that more apparent.

Conclusion

Taking the outside view is an important decision-making technique that can lead to more accurate predictions and enhanced emotional resilience. Whether in our personal lives or business and other contexts, considering the experiences and outcomes of similar situations can provide a more comprehensive understanding of what to expect, allowing us to make more informed decisions and achieve better outcomes.

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