Humans tend to think by analogy, which can create some cognitive trouble. One issue is that a single analogy, or even a handful of analogies, may fail to reflect a full reference class of relevant cases. For example, rather than asking whether this turnaround is similar to a prior turnaround, it is useful to ask for the base rate of success for all turnarounds. Psychologists have shown that properly integrating the outcomes from an appropriate reference class improves the quality of forecasts.
Another challenge with using analogies is that we see similarities when we focus on similarities and see differences when we focus on differences. The emphasis of the comparison colors the outcome. For example, Amos Tversky, a psychologist known for his collaboration with Daniel Kahneman, asked subjects which pair of countries they deemed more similar, West Germany and East Germany or Nepal and Ceylon (the study was done in the early 1970s and Ceylon changed its name to Sri Lanka in 1972). Two-thirds of the subjects selected West Germany and East Germany.
Tversky then asked subjects which pair of countries they deemed more different. Logic suggests an answer that is the complement of the first response, hence two-thirds finding Nepal and Ceylon more different. But that’s not what Tversky found. Seventy percent of the subjects rated West Germany and East Germany more different than the other pair. What you are looking for dictates what you see.”