overconfidence can be a form of strategic self-deception. A new paper by Peter Schwardmann and Joel van der Weele shows this. They got subjects to do intelligence tests and then selected some at random and told them that they could earn more money if they could convince other subjects that they had performed well on the tests. They found that the selected subjects were even more overconfident about their performance than non-selected ones.
Pointer from Mark Thoma.
We might ask when overconfidence will be selected for. Perhaps in sales. Perhaps in high-level executives. Almost certainly in politicians.
When will overconfidence be subject to checks and balances? My first thought is when firms face competition, profits, and losses.
An interesting related question is when is overconfidence self-validating.
Everyone who has ever bought a lottery ticket was over-confident, including all the winners.
Probably only as individuals and then, only the reflective. It is too easy to you weren’t wrong, only early, others didn’t execute well, believe enough, gave up too soon, there were circumstances beyond your control, or write it off as lessons learned.
Overconfidence is endemic in managers. Imagine yourself interviewing several candidates for a first-rung supervisor’s job. You describe a task they’d be managing — produce a web site for a major government health program, for example. You ask them how much staff they think they’ll need, how much time it will take, how much it’s going to cost. Once they respond, you say “Oh that’s too much. Think about it and give me a better answer.”
One guy not long out of school wants 8 people under him, six months to design and build, and a $400 thousand budget. That’s his “practical minimum” but he’s “realy gung-ho about this project.” There’s a lady with some experience who comes down to 10 people, 9 months and 750 thousand bucks, and who confesses that even with those resources the project sounds “a little iffy.”
You want to impress your bosses with your efficiency and decisiveness. So which of these would-be supervisors do you pick?
How about over-confidence in war? Few said Iraq could end a long term cluster war. I was against the war, but thought it will likely be a 2 year victory. I was concerned it had a 40% chance of be what it did become…In reality Iraq was still victory as Saddam was removed, and democracy did occur.
For all the complaints of over-confidence, doesn’t Keynes call these animal instincts? Capitalism needs a lot of over confident workers to be successful. For all the issues of 1929 collapse or 2008 Financial Crisis, won’t the 1920s & 1993 – 2005 US economies exceptionally strong? Japan’s 1980s economy was the strongest ever. Strong economies need over-confidence to grow but have a habit of failing big.
Good post.
“…when firms face competition, profits, and losses.”
In the world of K-12 (management and policy), I’ve often been puzzled by the overconfidence of various school superintendents et al.
“We’ll do X and Y, and that will cause a big increase in Z.”
Perhaps you put your finger on it. No competition, profits, losses.