Decisioneering and the Pitfalls of Wishful Thinking
Things They Forgot to Tell Me in Busines School

Being a veteran of the land development business in fast-growing, cash-rich, economies I have witnessed first-hand many times what a combination of large volumes of cheap money, heightened ambition, and a collective suspension of disbelief can accomplish. 

To build a dream you need a forceful vision able to overcome popular wisdom, defy expectations, and force its reality onto an unsuspecting world. But history remembers only the spectacular, at both ends of the spectrum. Few recall the majority of projects that live and die in the middle ground between the headline-grabbing extremes of success and failure. 

These middle ground projects are not normally distributed between the extremes. The price of occasional greatness is frequent failure and more limited success. The same factors that drive gravity-defying upsides for the few market innovators also propel gravity-enhanced downsides for the many imitators and late joiners. 
The root of many of these failures is unwarranted and sometimes forced optimism that comes in numerous forms, several of which crop up repeatedly and often together: 

Mistaking desire for opportunity: The dreamer’s downfall. Simply wanting something to happen is not the same as spotting a market opportunity that will allow it to happen. Yes, if it were easy or obvious someone would have done it before, in fact someone may have, so novelty or audacity are not problematic in themselves. But there must be a basis for optimism, a convincing rationale for why this idea will [still] work, an explanation of how it will work, and some evidence that these enabling factors are in place. This particular fallacy is usually driven from the top-down and thrives in environments with few checks and balances. 

Shooting for the stars: The optimist’s overreach. If ten of something is good, then twenty of it must be twice as good, right? While this maxim may ring true elsewhere in life [cupcakes, hugs from your mom?], there is rarely place for it land development. Market timing, demand, capture rate, and staying power are the determinants here. Prolonged bull markets often leave people assuming they can do no wrong; they start to ignore the competition and market constraints, focus only on building bigger and bigger projects, generally at the top-end of the market, and assume returns will come as a matter of course. Whilst this approach can work for an audacious few market leaders, it is a different story for the many trailers and imitators. Flooding the market with too much of a good thing is not a good thing. This approach can be driven from the top or the middle and is prevalent in latter stages of market booms where late movers still want a large piece of the action.

Groupthink: The collective’s self-deception. Everyone who has been around long enough has seen it, groups of otherwise rational people talking themselves into supporting ever rosier scenarios that challenge any individual’s more sober logic. Marked by an absence of critical evaluation, self-censorship, and a suppression of alternative viewpoints, project planning in this context becomes an echo-chamber with the loudest voices calling the tune. Within a growth context, groupthink can lead to overly ambitious projects accompanied by an equally inflated sense of certainty about the righteousness of the decision. Groupthink thrives as well in environments with few checks and balances.

Defending the model: The technician’s trouble. Before taking on any development project, an initial business model is built to determine feasibility and feed the go/no go decision. This model is most often based in incomplete information but is the best available decision tool at the time. Later, as the project advances and additional information comes on line, these initial assumptions can begin to look worryingly out of whack. A rational response would be to take this new information on-board and make decisions accordingly, even if it means modifying, delaying, or canceling the project. A human response, however, can be quite different. A refusal to accept changing fortunes, a misguided wish to protect existing investments, a desire to save face or avoid career setbacks, all can lead to efforts to defend the initial business model. This is done by forcibly molding incoming data through reinterpreting, modifying or omitting uncomfortable bits and enhancing or exaggerating positive pieces in ways that reinforce the initial conclusions. In business theory it falls into the camp of loss aversion, escalation of commitment, and sunk cost fallacy. This approach can be hard to detect and is generally driven from the middle, by managers with much to lose or gain.  

These few examples of wishful thinking are common decision traps that can spring at any time but become prevalent during long running up markets. They help ensure that the majority of late movers intent on following the path of innovation end up more often in failure than success. A larger lesson here is that if you are going to be a follower, don’t be greedy about it.