Dan Lovallo

Introduction

Dan Lovallo is a behavioral scientist who moved the psychology of judgment out of the laboratory and into the room where strategy gets made. His work asks why experienced executives produce forecasts that are wrong in a consistent direction, why firms enter markets where the odds are against them, and what can be done about it. With Daniel Kahneman he formalized the distinction between the inside view — building a forecast from the details of the case in front of you — and the outside view — ignoring the specifics and asking what happened to comparable projects.

The slogan that came out of that work captures its argument: organizations make timid choices and bold forecasts. Risk by risk, they avoid gambles; forecast by forecast, they promise outcomes the base rates do not support.

Early Life and Education

Lovallo was trained in the American research tradition rather than in business practice. Public biographical listings give a first degree in science from the University of Florida; the credential that shaped his research was his doctorate at the Haas School of Business, University of California, Berkeley, in behavioral and decision sciences. Berkeley in that period was one of the main centres for the psychology of judgment, and the training shows throughout his work: he builds on experimental findings about probability judgment rather than on case studies, and he treats a corporate investment committee as a setting where a known bias will express itself.

Academic and Professional Career

Lovallo has combined academic and consulting careers for most of his working life. He worked at McKinsey & Company as a consultant in strategy and operations, an experience that supplied the raw material for much of his later writing — his papers are full of capital-investment committees, mergers and infrastructure projects rather than urns and gambles.

He is Professor of Strategy, Innovation and Decision Sciences at the University of Sydney Business School, in the discipline of strategy, innovation and entrepreneurship, and a senior research fellow at the Institute for Business Innovation at UC Berkeley. He serves on the editorial boards of Strategy Science and McKinsey on Finance. His papers have appeared in the American Economic Review, Management Science, the Strategic Management Journal, the California Management Review and the Harvard Business Review, and have accumulated more than 16,000 citations.

The unusual feature of his career is its audience. Lovallo has written as many influential pages for practitioners as for scholars, and several of the ideas he helped articulate — the outside view, the premortem, decision hygiene — reached managers through the Harvard Business Review well before they reached textbooks.

Major Contributions to Psychology

Timid choices and bold forecasts

The 1993 Management Science paper with Kahneman is the foundation of everything else. Its argument has two halves. First, when executives decide whether to take a risk they are typically risk-averse, and Lovallo and Kahneman attribute part of this to prediction bias: decision-makers treat a single forecast as if it were a certainty, so a risky option looks worse than a probabilistic analysis of it would suggest. Second, when the same executives produce forecasts they are typically overconfident, because they construct them from the inside — from the plan, the schedule, the resources and the intentions specific to this project — rather than from the distribution of outcomes of projects like it.

The remedy they proposed is the outside view. Rather than asking how long this project will take, ask how long projects of this kind have taken. Kahneman and Amos Tversky had established the underlying phenomenon, the planning fallacy, and Bent Flyvbjerg later made reference class forecasting the standard method in transport and infrastructure planning. Lovallo's contribution was to show how the inside view operates inside organizations, and why organizational pressures make it worse.

Overconfidence and excess entry

With Colin Camerer, Lovallo published one of the best-known experimental demonstrations of overconfidence in markets. In the 1999 American Economic Review study, participants chose whether to enter a competitive market whose profitability depended on how many entrants there were and on the entrant's own ability. Entry was systematically excessive relative to the equilibrium prediction, and the effect was largest when participants had been told their own ability was high: the confident self-selected into the market, and the market duly became unprofitable. The paper connected a laboratory result to a real economic phenomenon — business formation is concentrated among people who believe they will beat the odds, and most new businesses fail.

Delusions of success

The 2003 Harvard Business Review article with Kahneman, "Delusions of Success," translated the research for managers. It laid out how forecasts for corporate initiatives — mergers, IT projects, market entries — routinely assume a best-case trajectory, and it recommended that organizations deliberately insert the outside view into the approval process. The 2011 HBR piece with Kahneman and Olivier Sibony, "Before You Make That Big Decision," extended the prescription into a set of procedural checks intended to reduce what Kahneman later called noise.

Delusion and deception in large infrastructure projects

With Flyvbjerg and Massimo Garbuio, Lovallo separated two explanations for the chronic cost overruns and benefit shortfalls of megaprojects. Delusion is the cognitive story: optimism bias and the inside view. Deception is the strategic one: promoters have incentives to underestimate cost and overestimate benefit, so the forecast is an instrument of approval rather than a prediction. The paper's point is that the two require different remedies, and that debiasing alone will not fix a problem that is partly deliberate.

Behavioral strategy

With Thomas Powell and Craig Fox, Lovallo published the 2011 Strategic Management Journal paper that named and defended the field of behavioral strategy: the attempt to ground strategic management in psychologically realistic assumptions about the people who make strategy, rather than in the rational-actor assumptions inherited from economics. Together with his 2010 McKinsey Quarterly piece with Sibony, "The Case for Behavioral Strategy," it set out the methodological demands the field would have to meet, including the problem of moving from individual biases to firm-level outcomes.

Major Publications

  • Kahneman, D., & Lovallo, D. (1993). "Timid choices and bold forecasts: A cognitive perspective on risk taking." Management Science, 39(1), 17–31.
  • Camerer, C., & Lovallo, D. (1999). "Overconfidence and excess entry: An experimental approach." American Economic Review, 89(1), 306–318.
  • Lovallo, D., & Kahneman, D. (2003). "Delusions of success: How optimism undermines executives' decisions." Harvard Business Review, 81(7), 56–63.
  • Flyvbjerg, B., Garbuio, M., & Lovallo, D. (2009). "Delusion and deception in large infrastructure projects: Two models for explaining and preventing executive disaster." California Management Review, 51(2), 170–194.
  • Powell, T. C., Lovallo, D., & Fox, C. R. (2011). "Behavioral strategy." Strategic Management Journal, 32(13), 1369–1386.
  • Kahneman, D., Lovallo, D., & Sibony, O. (2011). "Before you make that big decision." Harvard Business Review, 89(6), 50–60.

Impact and Legacy

Lovallo's influence is easiest to see in practice rather than in the academy. The outside view and reference class forecasting are now standard advice in project management, and the procedural checks he wrote about with Kahneman and Sibony have been adopted by investment committees and corporate strategy units. In academia he is one of the small group of researchers who connected the heuristics-and-biases programme to questions management scholars care about, and behavioral strategy is now a recognized subfield with its own journals and conferences.

The criticisms fall into three groups.

Attribution has drifted. Lovallo is frequently credited with inventing reference class forecasting and the outside view. He did not. The underlying planning fallacy is Kahneman and Tversky's, and reference class forecasting as a method was developed and applied systematically by Flyvbjerg. Lovallo's contribution was to show how the inside view operates in organizational decision processes and to argue for institutionalizing the outside view. The distinction matters: it clarifies which part of the result is actually his.

The overconfidence evidence is messier than the summary suggests. The excess-entry experiment is a classic, but the interpretation is contested — in experimental markets, apparently excessive entry can reflect risk preferences and the skewness of payoffs rather than biased beliefs, and separating the two is not straightforward. More broadly, Moore and Healy showed that "overconfidence" covers three distinct phenomena: overestimation of one's own performance, overplacement relative to others, and overprecision in one's beliefs. Studies often conflate them, and some famous overplacement findings turn out to be artifacts of task difficulty. The implication is not that optimism bias is unreal, but that the strength and mechanism of the effect depend on which variety is being measured.

Optimism is not uniformly costly, and debiasing is hard. A substantial literature asks whether entrepreneurial optimism is a liability or a functional requirement: optimists persist longer, work harder and attract capital, and experimentally induced optimism can improve performance on tasks that require persistence. Lovallo's own writing acknowledges that the point of the outside view is to make organizations calibrated rather than pessimistic. The harder objection concerns the remedy. Choosing a reference class is itself a judgment, and a reference class can be selected to produce whatever answer the forecaster wants, so the outside view is not a mechanical safeguard. Evidence for durable improvements from debiasing training in organizations remains thin, and in infrastructure the delusion/deception paper concedes that procedural fixes cannot neutralize strategic misrepresentation. Behavioral strategy has drawn a related critique — that importing individual biases into firm-level strategy requires an account of aggregation the field did not initially provide, a problem Powell, Lovallo and Fox themselves identified.

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References

  • Lovallo, D., & Kahneman, D. (2003). Delusions of success. Harvard Business Review, 81(7), 56-63.

Last updated: 2026-10-20

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