From Chip Heath’s “Decisive”
What is the Outside View and Inside View?
- Inside View– “Our evaluation of our specific situation.”
“The Inside View draws from information that is in our spotlight as we consider a decision—our own impressions and assessments of the situation we’re in.” - Outside View– “how things generally unfold in situations like ours.”
“The Outside View, by contract, ignores the particulars and instead analyzes the larger class it’s part of.”
“The outside view ignores everything that is special about our situation.” (Also known as the Base Rate.)
Before Making a Decision, You Should Trust the Base Rate (Outside View) More Than the Inside View!
- “The outside view is more accurate—it’s a summary of real-world experiences, rather than a single person’s impressions—yet we’ll be drawn to the inside view.”
- “What we’ve seen so far is a very simple rule for analyzing your options: Take the outside view. You should distrust the inside view—those glossy pictures in your head—and instead get out of your head and consult the base rates. Sometimes those numbers are readily available, as on TripAdvisor or Yelp. Sometimes you might have to cobble them together yourself. If neither of those options is possible, try consulting an expert for their estimates of the base rates.”
- “Often in life, though, we do the opposite: We trust our impressions over the averages. For example, many people will accept a new job without consulting a sample of people who currently or formerly held the same title. Shouldn’t their “reviews” be as valuable as a stranger’s assessment of a hotel room or restaurant? Strange to think that when we make critical decisions, we do less objective research than when we’re picking a sushi joint.”
- “Your friends and colleagues will suffer from this same stubbornness: the tendency to trust their own impressions too much. They’ll be trapped in the inside view, but you’ll have an easier time seeing the outside view. Be forewarned, though: Sometimes people can have access to the perfect set of data—and still manage to ignore it.“
- “what the data shows is that applied base rates are better than expert predictions, which are better than novice predictions.” (p. 122)
Jack, a Restauranteur, Doesn’t Trust the Outside View.
“imagine a restauranteur, Jack, who is deciding whether to take out a loan to start a Thai restaurant in downtown Austin.
What’s in the spotlight, for him, will be all the factors going for him: I’m a wonderful Thai cook. The location on 4th Street would be perfect. The foot traffic in that area is huge. There’s no other Thai restaurant close by. From the inside view, the opportunity looks pretty good.
By contrast, the outside view does not treat Jack’s situation as unique. It looks for the averages: Are there other people who’ve faced a similar situation, and if so, how did they fare?
This involves looking for, in statistics terminology, some “base rates” on the situation—data showing the record of other people in similar circumstances. Jack might learn, for instance, that 60% of restaurants fail in their first three years. From the outside view, the restaurant looks pretty risky.
it’s not intuitive for Jack to accept that he’s likely to fail. Why?
The outside view ignores everything special about our situation. All entrepreneurs have reason to believe, at the beginning, that they will succeed. Jack, for instance, would surely scoff at the base-rates data, saying, “I know Thai food, and I know Austin, and I know this will work. You can’t lump me in with a guy who sells corn dogs at the mall.” But he’d be wrong. There are enough commonalities among restaurants that their experiences are likely to be more similar than different. He should trust the base rates on restaurant success almost as much as he trusts the base rates on staying at the Polynesian Resort.“
Kanehman didn’t trust the Base Rates (Outside View)
“Then Kahneman suddenly recalled the idea of base rates from his statistics training, so he asked the dean whether he could recall other groups similar to theirs that had written a new curriculum from scratch. The dean said, yes, he could remember quite a few of them. Kahneman asked him to quantify the base rate: How long did it take them to finish?”
“Then Kahneman asked the dean, “How does our group compare to the others?” (Note that he’s trying to see whether there’s any reason to adjust their prediction up or down from the base rate, based on the group’s skill.) The dean replied, “Below average, but not by much.”
“Kahneman and his colleagues were optimistic when they took the inside view. The puzzle here is the dean’s behavior. He knew the base rates for developing a new curriculum, but his spotlight stayed trained on the group’s unique circumstances. From the inside view, it looked like they could wrap it up in two years. “There was no contact between something he knew and something he said.… He had all the information necessary to conclude that the prediction he was writing down was ridiculous,” said Kahneman.”
To gather good information and reality-test your ideas, go talk to an expert.
- “What we’ve seen so far is a very simple rule for analyzing your options: Take the outside view. You should distrust the inside view—those glossy pictures in your head—and instead get out of your head and consult the base rates. Sometimes those numbers are readily available…Sometimes you might have to cobble them together yourself. If neither of those options is possible, try consulting an expert for their estimates of the base rates.”
- “Perhaps the simplest and most intuitive advice we can offer in this chapter is that when you’re trying to gather good information and reality-test your ideas, go talk to an expert.”
- “If you’re considering filing an intellectual-property lawsuit against a competitor, talk to a top IP lawyer.”
- “An expert doesn’t have to be a heavily credentialed authority, though. The bar is actually far lower than that: An expert is simply someone who has more experience than you. If your son wants to be a carpenter, go talk to a carpenter. Any carpenter. If you’re thinking about relocating your business to South Carolina, call up someone, anyone, who has relocated their business to South Carolina. Here’s what is less intuitive: Be careful what you ask them. As we’ll see in the next chapter, experts are pretty bad at predictions. But they are great at assessing base rates.”
- “In short, when you need trustworthy information, go find an expert—someone more experienced than you. Just keep them talking about the past and the present, not the future.”
Other Good Quotes About the Inside/Outside View:
“In our experience, people fall into two camps about the outside view. Some people buy into the idea immediately, but others feel a bit dissatisfied. Should we really be willing to trust a set of data over our own antennae? Isn’t that dehumanizing somehow? Overly analytical?”
“Tetlock’s research demands a bit of humility from us when it comes to our predictive abilities. Whenever possible, we should get out of the business of prediction altogether.” (p. 122)
“The advice to trust the numbers isn’t motivated by geekery; it’s motivated by humility. We can’t lose sight of what the numbers represent: A lot of people like us—people full of passion for their opportunities—spent their time trying something very similar to what we’re contemplating. To ignore their experience isn’t brave and romantic—“I’m not going to let some analysis stand in the way of doing what I believe.” Rather, it’s egotistical. It’s saying, We set ourselves apart from everyone else. We’re different. We’re better.”
“The humble approach is to ask, “What can I reasonably expect to happen if I make this choice?” Once we accept the answer—and trust it to make our decision—then we can turn our attention to fighting the odds.”
“Zooming out and zooming in gives us a more realistic perspective on our choices. We downplay the overly optimistic pictures we tend to paint inside our minds and instead redirect our attention to the outside world, viewing it in wide-angle and then in close-up.”
“Mind you, for Jack to take the outside view—and accept those bleak odds of restaurant success—does not demand that he give up on the idea. It may be that a successful restaurant would be so lucrative that the risk is worth taking. Or he may consider the restaurant a good investment in his career, even if it fails. The outside view doesn’t require defeatism, but it does require respect for the likely outcomes. Put it this way: If he bets his kids’ college money on the venture, he’s nuts.”