Outside View & Risky Choice

. The outside view shifts the focus from the specifics of the current situation to the statistics of outcomes in similar situations. The outside view is a broad frame for thinking about plans. While a particular risky choice in a set of similar choices, eg insurance policy where you expect the occasional loss or the occasional failure of an uninsured product. The focus is on your ability to reduce or eliminate the pain of the occasional loss by the thought that policy has left you covered will be almost certainly be advantageous over the long term

. The outside view and the risk policies are remedies against 2 biases in decision-making, ie exaggerated opportunism of the planning fallacy and exaggerated caution induced by loss aversion. These 2 biases oppose each other with the exaggerated optimism protecting from the paralysing effects of loss aversion and loss aversion protecting from the follies of overconfident optimism.

. Optimists believe that the decisions they make are more prudent than they really are; loss-averse decision-makers correctly reject marginal propositions. For example, the top manager may be more optimistic than his line managers as the former can see the risks balancing themselves out while the latter sees all specific risks to his particular area of activity.

. Regret, frustration and self-satisfaction can also be affected by framing. These are known as secondary consequences and can be changed upon reflection.

 

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