Since we’re the main protagonists of our own stories, it’s hard to believe we’d be irrational about decision-making. And yet, chances are that you and I would do exactly the same thing as most decision-makers, because we get trapped in the illusion that we know exactly where we are going and can perfectly control the path to get there.
We plan our weekends in vivid detail. And then live a completely different one. Why? Because we all seek psychological security in the face of unpredictability.
Financial projections are the corporate version of planning your weekend — except we’re looking at 52 weekends instead of just one. And the main challenge is that we only have historical data —or, worse — as in my case —no data at all. But producing projections still feels like the right thing to do. Because leaders have a profound intolerance for ambiguity. So off we go — building dashboards, frameworks, failsafe plans, detailed step-by-step roadmaps that feel rigorous, decisive, and fully in control of the environment.
What we’re actually missing is the “outside view.” By focusing so narrowly on internal details, context, and historical data, we overlook the broader statistical reality of similar past projects and the unknown unknowns in the external environment. The best financial planning treats a complex, dynamic ecosystem as if it were a simple, predictable machine — one that operates independently of competition, market shifts, or internal politics.
The invisible force keeping everyone locked in isn’t stupidity. It’s the sunk-cost fallacy and institutional inertia. Corporate planning exercises continue to chew into valuable executive time — costing companies millions — because they’ve already invested so much time and energy in last year’s plan, and the year before that, and the years before that. One of these years, we’ll accurately forecast. So they keep going. Abandoning the plan requires putting aside the ego, admitting ignorance, and facing the anxiety of being lost all over again. The board, the chairman, the CEO — they can’t wait to approve the latest projections. You can’t disrupt their expectations. So organizations irrationally persist, sticking to the plan long after they have lost touch with reality.
And if you think this only happens to people who don’t know better, consider Daniel Kahneman.
Nobel laureate, father of behavioral economics, the man who literally wrote the curriculum on decision-making bias. He led a team of experts to create a high school curriculum on judgment and decision-making, projecting that the whole process would take about two years. In the middle of the process, their own curriculum expert admitted that similar projects always took at least seven years — and 40 percent of them failed entirely. Kahneman and his team ignored it. Trapped in the inside view, they irrationally persisted with their original plan.
The project took eight years to finish. The curriculum was never used anywhere.