Overconfidence. Times three.
Melina Moleskis, PhD MBA
I teach and train about the cognitive side of decision-making | GAABS Board member
If you like this, you can visit my blog for more decision-y tips.
“It is unwise to be too sure of one’s own wisdom. It is healthy to be reminded that the strongest might weaken and the wisest might err.”
- Mahatma Gandhi
On August 6, 1997, the pilot of Korean Air flight 801 from Seoul to Guam, sure that he knew what he was doing, did not listen to the concerns of his flight engineer and crashed his Boeing 747 into the side of a hill a few miles from the airport in Guam.
On January 3, 2004, the pilot of Flash Airlines Flight 604 from Sharm el-Sheikh, Egypt, to Paris, experienced spatial disorientation and ignored the data from his copilot and the airplane’s navigation instruments and crashed his plane into the Red Sea.
And on January 13, 2012, the captain of the cruise ship Costa Concordia departed from the officially designated route near the western coast of Italy to plot his own course and ran the half-billion-dollar cruise ship, with 4,200 passengers on board, aground.
?Source: Bazerman, M. H. (2002), Judgement in Managerial Decision Making. New York: John Wiley & Sons.
When are we being overconfident?
Beneficial for self-esteem, resilience and well-being.
Disastrous when making important decisions and solving problems.
Overconfidence.
“What would I eliminate if I had a?magic wand? Overconfidence” said Nobel laureate and father of behavioral economics (though a psychologist!), Daniel Kahneman.
But… do we even know when we are being overconfident?
?It can look like any one of these three ways. We are overconfident when:
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1/ We overprecise: we are too sure of our judgments and decisions, making us uninterested in testing our assumptions, seeking advice or listening to feedback. We are too quick to act on our opinions and too slow to update our erroneous beliefs. We believe that the way we see the world is the only sensible view (na?ve realism) and others are either stupid or evil. We acknowledge imperfections in others but resist the idea that we ourselves may be biased.
?2/ We overestimate: we think we're better, smarter, faster, more capable, more attractive or more popular (and so on) than we actually are. As a result, we overestimate how much we can achieve in a limited amount of time, or believe we have more control than we actually do. And we believe that the groups to which we belong are superior to other groups.
?3/ We overplace: we mistakenly believe that we rank higher than others on certain dimensions, particularly in competitive contexts, by neglecting the relevant reference group. Our inflated expectations can land us in trouble when we pick the wrong battles or try to apply our talents.
Why do we get overconfident?
That’s easy.
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So what? The problems with overconfidence & decisions
?Overconfidence, and positive illusions in particular, can be good for you in the sense that they protect self-esteem, enhance psychological resilience, improve well-being, increase personal contentment and commitment, help us persist at difficult tasks, and are beneficial to physical and mental health.
?Yet when it comes to making good decisions and solving problems, overconfidence is a dangerous trap. ??
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Just as an example - research analyzed over 10,000 forecasts made by financial officers of thousands of firms over many years. The results show that actual market returns fall inside these executives’ 80% confidence intervals only 33% of the time!
Now what? Two good decision tools to use
1/ Inner “wisdom of the crowds”
Whenever you need to make a judgment about something try to come up with two estimates. Make the first estimate as yourself and for the second estimate pretend to be someone else, someone who would disagree with you, and think what they would say. Then take the average of these two.
In most cases, this will give you a final judgment that is more accurate than your initial one. Reminiscent of the old saying that “usually, the truth lies somewhere in the middle…”
?2/ Reference group
Instead of thinking about something in absolute terms or comparing it to a large population, ?try comparing it to the special group to which it belongs.
Example:
Joey Dorsey was selected in the second round (33rd overall pick) of the 2008 NBA Draft by the Portland Trail Blazers. However, despite being highly ranked in certain aspects, his NBA career did not live up to the expectations associated with his draft position. One of the reasons, as explained in “The Undoing Project” by Michael Lewis, was the fact that Dorsey’s stats were compared against other college players despite the fact that Dorsey was a couple of years older than them and his body was more developed. In this case, what NBA rankings missed was to use the right reference group for Dorsey’s performance.
Question for you
Can you take a 2-minutes to think how you may be acting overconfident? Can you apply the inner wisdom of the crowds to recalibrate your position?
Thanks for reading!
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