“Daniel Kahneman used to say, “The way to become a General in the Israeli army was to be overconfident and lucky”. You do two stupid things that work out and you are a hero. In the US, the way to become a CEO is to be overconfident, tall and good-looking. That is why I ended up as an academic!”
-Richard Thaler, Noble Prize winner for Economics ,2017
Richard Thaler is a professor at Chicago Booth and has worked with Daniel Kahneman.
Thaler had praised Narendra Modi for demonetization. He won Noble Prize for Economics this year.
He give an interesting example on organisational culture, expectations of CEO and risk taking.
I was teaching a group of executives from a publishing company. Each of them ran a particular publication, like a magazine or a newspaper. The CEO was there too.
I said, “Suppose, there is an investment, wherein there is a 50% chance it returns $2 million and 50% chance you lose $1 million. Would you make this investment?”. Three guys out of 22 said yes.
Then, I asked the CEO, “What would you like?”. He said, “I would like everybody to do (the investment)”.
I told him, “You have a problem. You have created an organisation where people are afraid to take risks.” Then, I asked one of them why they wouldn’t do it. And he said that if it worked he might get a pat on the back, maybe a small bonus; but if it didn’t work, he could get fired. That is not a good gamble.
He also talks about hindsight bias. He explains hindsight bias an idea that you always know what is going to happen and this contributes to overconfidence because people do not remember how often they have been wrong.
They remember thinking all along for ex.decade ago no one thought that an African-American would get elected as president, before a woman. No one thought that, but people remember thinking it.
In one of his assignment he asks every team member, including the leader, to write down their views before a decision. That way one will avoid situations where people come back after things have gone wrong, saying they knew it wouldn’t work out.