Chronic Human Overconfidence
December 1, 2011 Leave a comment
Why We Reason has a nice short article on overconfidence that I wanted to share, because it’s something that everyone should be taught.
David Brooks put it best in a recent TED talk: “95 percent of professors report that they are above average teachers, 96 percent of college students say that they have above average social skills… [and] 19% of Americans say that they are in the top 10% of earners.” The list goes on – most people think they are above average drivers, have above average intelligence, humor, etc. You get the idea.
At first this seems like a sort of harmless statistical misestimation, until you get into examples of people whose function it is to predict things. People who have to make predictions for a living are still horrible at it, and horribly overconfident.
Unlike Williams and Gilovich’ study, downsides to overconfidence can sometimes mean the difference between millions of dollars. Here are two examples.
The first is a study conducted throughout the 2000s by a group of professors at Duke University. They asked chief financial officers of large corporations to predict the returns of the Standard & Poor’s index over the course of the following year. Their findings weren’t encouraging; the correlation between their estimates and reality was slightly less than zero. In other words, the CFO’s hadn’t a clue of where the returns were headed.
And yet, it goes on to say, they were grossly overconfident of their predictions. This is a pervasive and rather dramatic human fallacy, and it affects – well, I don’t want to overestimate here, so I’ll say lots of people. Knowing this is important for reasons I’ve touched on before; we as a population need to realize how many fallacies we’re prey to so that we can be much, much more humble than we currently are. Being open to the possibility of being wrong is important in our personal lives, as well as, as is evident from this article, our professional lives, and basically for everyone’s wellbeing.
Again, the article at Why We Reason is very short and very convincing, so I recommend you check it out if you’re at all interested.