A prospective failure analysis technique: before making a decision, imagining that it has already failed and working backward to identify what caused the failure.
Deeper Explanation
The pre-mortem, developed by psychologist Gary Klein and popularised by Kahneman, overcomes the optimism bias and groupthink that prevents investors from adequately considering downside scenarios. By framing the question as "the investment has failed — what went wrong?" rather than "what could go wrong?", the pre-mortem makes it psychologically safe to identify flaws in a thesis that the investor is already committed to. Implemented as part of an investment checklist, it forces identification of the two or three specific failure modes most likely to destroy the investment thesis — which then become the monitoring indicators tracked after the position is entered.
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