Overcoming magical thinking

A few days ago, Silicon Valley Bank failed. This will be discussed, debated, and investigated for months, if not years.

Unlike everyone else on the internet, however, I have not suddenly become a banking or investment expert. You might think that because I worked for Wells Fargo for 17 years, I would know a thing or two about banking and investments.

I do not.

In fact, my sister, who was a very successful and celebrated fund manager, once told me that my money management style had a name: benign neglect.

So I’m not going to talk about banking or investing in this blog post per se.

I’m going to talk about the seduction of optimism.

Optimism is often self-fulfilling

No matter which personality assessment I take, positivity always rises to the top.

I’m a firm believer that if you have a growth mindset, you don’t fear change or ambiguity, and you embrace possibility, then things will, more often than not, work out well.

I realize this is a position that’s partly enabled by privilege. I have more options open to me than many other people just because of my gender, the color of my skin, the zip code of my birth, my lack of disability, and many other dimensions of privilege I’m lucky to have.

On the other hand, feeling positive about things working out for the better is often self-fulfilling no matter the context: If you’re looking for the positive in everything and the best way forward, you’re more likely to find it. If you’re mired in negativity, you’re more likely to see only the bad, thus missing out on good opportunities that present themselves.

When optimism becomes magical thinking

But any strength overused can become a detriment. Positivity overused (sometimes called toxic positivity) can manifest as magical thinking.

Being overly positive to the point it becomes magical thinking can get people to downplay serious risks and ignore potentially fatal dangers. It can make people complacent, let them convince themselves that a problem is not as urgent as it really is.

Magical thinking can also grow from other sources, however. Not just from optimism.

For example:

Fear of the future: Only about one-third of American adults have an end-of-life plan. Generally speaking, we fear death. We don’t want to think about it, so we avoid thinking about it and trust that things will work out when they need to. That leaves us, both individually and as a society, woefully unprepared for the cost, complexity, emotional distress, and time demands caused by caregiving for an increasingly aging population.

Herd mentality: When everyone else is sprinting across a field, it’s hard to be the one who stays behind… even if you know they’re all sprinting toward a cliff to hurl themselves into the sea. Herd or mob mentality, also called group-think, is hard to overcome even when you’re 100% certain you’re right and everyone else is wrong. “But so many other people can’t all be wrong. I’d better go with the flow.”

Fear of missing out: When everyone else is rushing into a new fad that promises untold easy riches (think gold rushes, dot-com stocks, sub-prime mortgages, cryptocurrencies), the fear of missing out on sudden wealth becomes incredibly seductive… to the point that you ignore the obvious risks and potentially fatal dangers lying in wait.

Badly designed incentive system: When the company you work for promises huge paychecks for generating explosive short-term returns, you look for the fastest way to the biggest possible win. When you’re investing other people’s money, big risks that would stop you from investing your own money don’t seem so consequential. Even truly disastrous potential outcomes get put into the “very unlikely” category when huge profit is right there for the taking.

Overcoming magical thinking

If you’re in charge of a team, it’s your job to make sure magical thinking doesn’t sink your organization.

If you’re leading the first all-female Everest expedition (or even just a cub scout hike), you have to make the right choices to keep everyone safe. Reaching the summit only matters if you get everyone home safely.

If you’re investing billions of dollars of other people’s money, you have to make sure not to lose it all. Short term growth only matters if you don’t destroy your investors in the process.

There are lots of things you can do to help guard against magical thinking. The tips below aren’t rocket science, but we all need reminders sometimes:

• Check yourself
  Recruit some trusted allies in your inner circle and ask them to balance your thinking. “What am I missing” is an important question. Listening to the answer is equally important. If you don’t have people you can turn to, hire an impartial third party like a coach to help.
• Channel your inner pessimist
  Brainstorm all the ways your plan can go wrong. When you want to laugh some of them off as far-fetched, hold yourself up a moment and step back. Is it really as absurd as you’re treating it? Even if a bad outcome seems pretty unlikely, would the outcome be so disastrous that you can’t ignore it? For example, in 2021 I canceled an in-person fundraising dinner because the Omicron variant of COVID-19 looked like it might be heating up. The risk seemed low, but the possibility of hosting a super-spreader event was too disastrous to accept at the time.
• Watch out for signs of group-think
  Group-think can happen even in the most open cultures. Just because everyone feels safe to disagree doesn’t mean they will. Intellectual laziness, social pressures to fit in, a desire to impress, or a failure of vision can all lead to group-think. Avoiding group-think is one of the biggest reasons to embrace diversity and encourage a broad range of thinking. Find the quiet thinkers on your team and circle back with them to hear what they didn’t bring up in the meeting.
• Examine your incentive structures
  Analyze your rewards, punishments, and enforcement processes. People are remarkably good at understanding the real rewards and punishments of the system they work in, regardless what your “vision and values” pamphlet claims. If you’re rewarding cheating while punishing ethical behavior, expect people to cheat. Be objective enough to understand when the system you create does not match the values you claim to hold. And then, be adult enough to take ownership and fix it.

Greed does not need to take down the economy

I have read a little about the failure of Silicon Valley Bank and the resulting panic it seems to have caused, but I don’t know enough to be an expert on the topic.

Still, it’s not a stretch to believe that greed led to magical thinking, and a herd mentality that allowed too many people to look the other way, even when they recognized the risks. Criminal? Maybe. Bad leadership? Certainly.

It’s unlikely the readers of this blog are CEOs of enormous banks, but the lessons here are applicable to any type of leadership… from CEO to volunteer soccer coach.

As a leader, it’s your job to make sure your team, your project, and your organization don’t get sunk by magical thinking, group-think, or a poorly designed incentive system.

If you want to talk through how you can most effectively lead your team or your organization, let’s talk.