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Track: Decision Analysis

The Optimizer’s and Winner’s Curses: How Uncertainty Fools Decision-makers, Illustrated and Explained with Examples from Project Selection and Portfolio Optimization

Tuesday, April 13, 1:45-2:25pm EDT

When you evaluate projects in product development, why are forecasts of strong future sales often optimistic? Why are new product development portfolios persistently overvalued, causing executives to suffer reoccurring disappointment? Executives may blame project evaluation, accusing it of optimism, but persistent optimism arises even when asset evaluations are unbiased. The reason for the optimism and recurring disappointment is the optimizer’s curse, the ubiquitous, counterintuitive, and harmful interaction of uncertainty and decision making. This presentation explains the curse, unmasks its mechanism, shows how it corrupts portfolio management, and presents a solution that mitigates the curse. Examples throughout the presentation help the audience build intuition.

Gary Summers image

Gary Summers

Gary Summers

President at Pipeline Physics LLC

Gary Summers is president of Pipeline Physics LLC, a boutique research center and consultancy that studies how uncertainty affects decisions and business processes. His business simulations, which study how people and teams make risky decisions, received U.S. patents 6,236,955; 6,408,263, and 7,349,838. Dr. Summers earned an M.S. and Ph.D. in Management Science from Northwestern University, performed a post-doctoral fellowship at Oregon Graduate Institute (Oregon Health Science University), and was a visiting research professor at Portland State University.