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'This time is different': The 4 most costly words in business?
When we look at situations, we're always looking for what's unique. We should give more thought to similarities.
"This time is different" could be the four most costly words ever spoken. This phrase encourages us to draw massively problematic conclusions.
We incorrectly think that differences are more valuable than similarities. After all, anyone can see what's the same. It takes true insight to see what's different, right? But we're all so busy trying to find differences that we forget to pay attention to what is the same.
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Imagine sitting in a meeting where people are about to make the same mistake they made last year on the same decision. Let's say, for example, Jack has a history of messing up the annual tax returns. He's a good guy. He's nice to everyone. In fact, he buys everyone awesome Christmas presents. But the last three years — the period he's been in charge of tax returns — have been nothing short of a disaster causing more work for you and your department.
The assignment for the tax return comes up and Jack is once again nominated.
Before you have a chance to voice your concerns, one of your co-workers speaks up: "I know Jack has dropped the ball on this assignment in the past but I think this time is different. He's been working hard to make sure he's better organized."
That's all it takes. Conversation over — everyone is focused on what's unique about this time and it's unlikely, despite ample evidence, that you'll be able to convince them otherwise.
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In part, people want to believe in Jack because he's a nice guy. In part, we're all focused on why this time is different and we'll ignore evidence to the contrary.
Focusing on what's different makes it easy to forget historical context. We lose touch with the base rate. We only see the evidence that supports our view (confirmation bias). We become optimistic and overconfident.
History provides context. And what history shows us is that no matter how unique things are today, there are a lot of similarities with the past.
Consider investors and the dotcom bubble. Collectively, people saw this as unprecedented and unique, a massive transformation that was unparalleled.
That reasoning, combined with a blindness to what was the same about this situation and previous ones, encouraged us to draw conclusions that proved costly. We reasoned that everything would change and everyone who owned internet companies would prosper and the old non-internet companies would quickly go into bankruptcy.
All of a sudden profits didn't matter. Nor did revenue. They would come in time, we hoped. Market share mattered, no matter how costly it was to acquire.
More than that, if you didn't buy now you'd miss out. These companies would take over the world and you'd be left out.
We got so caught up in what was different that we forgot to see what was the same.
And there were historical parallels: automobiles, radio, television, and airplanes to name a few. At the time these innovations completely transformed the world as well. You can consider them the dotcoms of yesteryear.
And how did these massively transformational industries end up for investors?
At one time there were reportedly over 70 different auto manufacturing operations in the United States. Only three of them survived (and some of those required government funds).
If you catch yourself reasoning based on "this time is different," remember that you are probably speculating. While you may be right, odds are, this time is not different. You just haven't looked for the similarities.
