General Pride? Dr. Hubris? Welcome to our Strategic Finance lesson

Wouldn’t you know that after I’d just finished posting about the soldiers of the 7 Deadly Sins Army … notably General Pride and his two prized henchmen, Major Envy and Major Jealousy, and their infection of the $10 trillion merger boom that mostly failed its shareholders … that I’d discover an article by Richard Thaler, University of Chicago professor about The Overconfidence Problem in Forecasting.

[pullquote]Pride is considered the mother of all sins … and Hubris is its evil twin.[/pullquote]

Thaler recounts how overconfidence in forecasting is a common thread that weaves a nefarious tapestry in corporate America. He reports on a study by three financial economists that found that CFOs of major corporations are not too good at forecasting … rather, they were terrible at it. CEOs, in turns out, aren’t much better … and studies as far back as 1986 … imagine that … found that hubris … overconfidence with a capital H … is to blame for the bloated premiums paid to acquisition candidates. As I’ve reported earlier, Pride is considered the mother of all sins … and Hubris is its evil twin.

He closes his article with one of my favorite Mark Twain quotes: “It ain’t what you know that gets you into trouble. It’s what you know for sure that just ain’t so.”

Can I get an Amen?

Leave a Reply