Overconfidence effect

One manifestation of the overconfidence effect is the tendency to overestimate one's standing on a dimension of judgment or performance. This subsection of overconfidence focuses on the certainty one feels in their own ability, performance, level of control, or chance of success. This phenomenon is most likely to occur on hard tasks, hard items, when failure is likely or when the individual making the estimate is not especially skilled. Overestimation has been seen to occur across domains other than those pertaining to one's own performance. This includes the illusion of control, planning fallacy.

Illusion of control describes the tendency for people to behave as if they might have some control when in fact they have none.{{cite journal|last1=Langer|first1=Ellen J.|title=The illusion of control|journal=Journal of Personality and Social Psychology|volume=32|issue=2|year=1975|pages=311–328|doi=10.1037/0022-3514.32.2.311|s2cid=30043741}} However, evidence does not support the notion that people systematically overestimate how much control they have; when they have a great deal of control, people tend to underestimate how much control they have.{{cite journal|last1=Gino|first1=Francesca|last2=Sharek|first2=Zachariah|last3=Moore|first3=Don A.|title=Keeping the illusion of control under control: Ceilings, floors, and imperfect calibration|journal=Organizational Behavior and Human Decision Processes|volume=114|issue=2|year=2011|pages=104–114|doi=10.1016/j.obhdp.2010.10.002}}

The planning fallacy describes the tendency for people to overestimate their rate of work or to underestimate how long it will take them to get things done.{{cite journal|last1=Buehler|first1=Roger|last2=Griffin|first2=Dale|last3=Ross|first3=Michael|title=Exploring the "planning fallacy": Why people underestimate their task completion times|journal=Journal of Personality and Social Psychology|volume=67|issue=3|year=1994|pages=366–381|doi=10.1037/0022-3514.67.3.366|s2cid=4222578}} It is strongest for long and complicated tasks, and disappears or reverses for simple tasks that are quick to complete.

Wishful-thinking effects, in which people overestimate the likelihood of an event because of its desirability, are relatively rare.{{cite journal|last1=Krizan|first1=Zlatan|last2=Windschitl|first2=Paul D.|title=The influence of outcome desirability on optimism|journal=Psychological Bulletin|volume=133|issue=1|year=2007|pages=95–121|doi=10.1037/0033-2909.133.1.95|url=http://public.psych.iastate.edu/zkrizan/pdf/krizan_windschitl_06db.pdf|pmid=17201572|url-status=dead|archiveurl=https://web.archive.org/web/20141217083929/http://public.psych.iastate.edu/zkrizan/pdf/krizan_windschitl_06db.pdf|archivedate=2014-12-17|access-date=2014-11-07}}

This may be in part because people engage in more defensive pessimism in advance of important outcomes,{{cite journal|last1=Norem|first1=Julie K.|last2=Cantor|first2=Nancy|title=Defensive pessimism: Harnessing anxiety as motivation|journal=Journal of Personality and Social Psychology|volume=51|issue=6|year=1986|pages=1208–1217|doi=10.1037/0022-3514.51.6.1208|pmid=3806357}} in an attempt to reduce the disappointment that follows overly optimistic predictions.{{cite journal|last1=McGraw|first1=A. Peter|last2=Mellers|first2=Barbara A.|last3=Ritov|first3=Ilana|title=The affective costs of overconfidence|journal=Journal of Behavioral Decision Making|volume=17|issue=4|year=2004|pages=281–295|url=http://leeds-faculty.colorado.edu/mcgrawp/pdf/mcgraw.mellers.ritov.2004.pdf|doi=10.1002/bdm.472|url-status=live|archiveurl=https://web.archive.org/web/20160304083514/http://leeds-faculty.colorado.edu/mcgrawp/pdf/mcgraw.mellers.ritov.2004.pdf|archivedate=2016-03-04|citeseerx=10.1.1.334.8499}}

Overprecision is the excessive confidence that one knows the truth. For reviews, see Harvey{{cite journal|last1=Harvey|first1=Nigel|title=Confidence in judgment|journal=Trends in Cognitive Sciences|volume=1|issue=2|year=1997|pages=78–82|doi=10.1016/S1364-6613(97)01014-0|pmid=21223868|s2cid=8645740}} or Hoffrage.{{cite book|chapter = Overconfidence|editor-first = Rüdiger|editor-last = Pohl|first = Ulrich|last = Hoffrage|title = Cognitive Illusions: a handbook on fallacies and biases in thinking, judgement and memory|publisher = Psychology Press|date = 2004|isbn = 978-1-84169-351-4|chapter-url-access = registration|chapter-url = https://archive.org/details/cognitiveillusio0000unse|url-access = registration|url = https://archive.org/details/cognitiveillusio0000unse}}

Much of the evidence for overprecision comes from studies in which participants are asked about their confidence that individual items are correct. This paradigm, while useful, cannot distinguish overestimation from overprecision; they are one and the same in these item-confidence judgments. After making a series of item-confidence judgments, if people try to estimate the number of items they got right, they do not tend to systematically overestimate their scores. The average of their item-confidence judgments exceeds the count of items they claim to have gotten right.{{cite book|last1=Gigerenzer|first1= Gerd|year=1993|chapter= The bounded rationality of probabilistic mental models|editor-first1= K. I.|editor-last1= Manktelow |editor-first2=D. E. |editor-last2=Over|title=Rationality: Psychological and philosophical perspectives |pages=127–171|location=London|publisher=Routledge|isbn=9780415069557}}

One possible explanation for this is that item-confidence judgments were inflated by overprecision, and that their judgments do not demonstrate systematic overestimation.

The strongest evidence of overprecision comes from studies in which participants are asked to indicate how precise their knowledge is by specifying a 90% confidence interval around estimates of specific quantities. If people were perfectly calibrated, their 90% confidence intervals would include the correct answer 90% of the time.{{cite book|last1=Alpert|first1= Marc|first2=Howard |last2=Raiffa|chapter=A progress report on the training of probability assessors|editor-last1=Kahneman|editor-first1=Daniel|editor-last2=Slovic|editor-first2=Paul|editor-last3=Tversky|editor-first3=Amos|title=Judgment Under Uncertainty: Heuristics and Biases | publisher=Cambridge University Press| date=1982| isbn=978-0-521-28414-1|pages=294–305}}

In fact, hit rates are often as low as 50%, suggesting people have drawn their confidence intervals too narrowly, implying that they think their knowledge is more accurate than it actually is.

Overplacement is the most prominent manifestation of the overconfidence effect which is a belief that erroneously rates someone as better than others.{{cite journal |last1=Vörös |first1=Zsófia |title=Effect of the different forms of overconfidence on venture creation: Overestimation, overplacement and overprecision |journal=Journal of Management & Organization |date=2020 |volume=19 |issue=1 |pages=304–317|doi=10.1017/jmo.2019.93|s2cid=212837116 }} This subsection of overconfidence occurs when people believe themselves to be better than others, or "better-than-average". It is the act of placing yourself or rating yourself above others (superior to others). Overplacement more often occurs on simple tasks, ones we believe are easy to accomplish successfully.

{{main|Illusory superiority}}

Perhaps the most celebrated better-than-average finding is Svenson's finding that 93% of American drivers rate themselves as better than the median.{{cite journal|last1=Svenson|first1=Ola|title=Are we all less risky and more skillful than our fellow drivers?|journal=Acta Psychologica|volume=47|issue=2|year=1981|pages=143–148|doi=10.1016/0001-6918(81)90005-6}}

The frequency with which school systems claim their students outperform national averages has been dubbed the "Lake Wobegon" effect, after Garrison Keillor's apocryphal town in which "all the children are above average."{{cite journal|last1=Cannell|first1=John Jacob|year=1989|title=How public educators cheat on standardized achievement tests: The "Lake Wobegon" report|url=http://eric.ed.gov/?id=ED314454|journal=Friends for Education|url-status=live|archiveurl=https://web.archive.org/web/20141107152116/http://eric.ed.gov/?id=ED314454|archivedate=2014-11-07}} Overplacement has likewise been documented in a wide variety of other circumstances.{{cite book|last=Dunning|first=David|title=Self-Insight: Roadblocks and Detours on the Path to Knowing Thyself|url=https://books.google.com/books?id=IAh2VRu4wGgC|year=2005|publisher=Psychology Press|isbn= 978-1841690742 }}

Kruger, however, showed that this effect is limited to "easy" tasks in which success is common or in which people feel competent. For difficult tasks, the effect reverses itself and people believe they are worse than others.{{cite journal|last1=Kruger|first1=Justin|title=Lake Wobegon be gone! The "below-average effect" and the egocentric nature of comparative ability judgments|journal=Journal of Personality and Social Psychology|volume=77|issue=2|year=1999|pages=221–232|doi=10.1037/0022-3514.77.2.221|pmid=10474208}}

Some researchers have claimed that people think good things are more likely to happen to them than to others, whereas bad events were less likely to happen to them than to others.{{cite journal|last1=Weinstein|first1=Neil D.|title=Unrealistic optimism about future life events|journal=Journal of Personality and Social Psychology|volume=39|issue=5|year=1980|pages=806–820|doi=10.1037/0022-3514.39.5.806|citeseerx=10.1.1.535.9244|s2cid=14051760 }}

But others have pointed out that prior work tended to examine good outcomes that happened to be common (such as owning one's own home) and bad outcomes that happened to be rare (such as being struck by lightning).{{cite journal|last1=Chambers|first1=John R.|last2=Windschitl|first2=Paul D.|title=Biases in Social Comparative Judgments: The Role of Nonmotivated Factors in Above-Average and Comparative-Optimism Effects|journal=Psychological Bulletin|volume=130|issue=5|year=2004|pages=813–838|doi=10.1037/0033-2909.130.5.813|pmid=15367082|s2cid=15974667}}{{cite journal|last1=Chambers|first1=John R.|last2=Windschitl|first2=Paul D.|last3=Suls|first3=Jerry|title=Egocentrism, Event Frequency, and Comparative Optimism: When what Happens Frequently is "More Likely to Happen to Me"|journal=Personality and Social Psychology Bulletin|volume=29|issue=11|year=2003|pages=1343–1356|doi=10.1177/0146167203256870|pmid=15189574|s2cid=8593467}}{{cite journal|last1=Kruger|first1=Justin|last2=Burrus|first2=Jeremy|title=Egocentrism and focalism in unrealistic optimism (and pessimism)|journal=Journal of Experimental Social Psychology|volume=40|issue=3|year=2004|pages=332–340|doi=10.1016/j.jesp.2003.06.002}}

Event frequency accounts for a proportion of prior findings of comparative optimism. People think common events (such as living past 70) are more likely to happen to them than to others, and rare events (such as living past 100) are less likely to happen to them than to others.

{{Main|Positive illusions}}

Taylor and Brown have argued that people cling to overly positive beliefs about themselves, illusions of control, and beliefs in false superiority, because it helps them cope and thrive.{{cite journal|last1=Taylor|first1=Shelley E.|last2=Brown|first2=Jonathon D.|title=Illusion and well-being: A social psychological perspective on mental health|journal=Psychological Bulletin|volume=103|issue=2|year=1988|pages=193–210|doi=10.1037/0033-2909.103.2.193|pmid=3283814|citeseerx=10.1.1.385.9509|s2cid=762759 }}

Although there is some evidence that optimistic beliefs are correlated with better life outcomes, most of the research documenting such links is vulnerable to the alternative explanation that their forecasts are accurate.

People tend to overestimate what they personally know, unconsciously assuming they know facts they would actually need to access by asking someone else or consulting a written work. Asking people to explain how something works (like a bicycle, helicopter, or international policy) exposes knowledge gaps and reduces the overestimation of knowledge on that topic.{{cite book |title=The Knowledge Illusion: Why We Never Think Alone |year=2018 |publisher=Riverhead Books |isbn=978-0399184369 |author1=Steven Sloman |author2=Philip Fernbach}}

{{Quote box |quote="Overconfident professionals sincerely believe they have expertise, act as experts and look like experts. You will have to struggle to remind yourself that they may be in the grip of an illusion." |source=—Daniel Kahneman{{cite news|last=Kahneman|first=Daniel|title=Don't Blink! The Hazards of Confidence|url=https://www.nytimes.com/2011/10/23/magazine/dont-blink-the-hazards-of-confidence.html?ref=general&src=me&pagewanted=all|newspaper=New York Times|date=19 October 2011}} Adapted from: {{cite book|last=Kahneman|first=Daniel|title=Thinking, Fast and Slow|url=https://archive.org/details/thinkingfastslow0000kahn|url-access=registration|year=2011|publisher=Farrar, Straus and Giroux|isbn=978-1-4299-6935-2}} |width=30% |align=right}}

Social psychologist Scott Plous wrote, "No problem in judgment and decision making is more prevalent and more potentially catastrophic than overconfidence."Plous (1993, p. 217). It has been blamed for lawsuits, strikes, wars, poor corporate acquisitions,{{cite journal |last1=Malmendier |first1=Ulrike |last2=Tate |first2=Geoffrey |title=Who makes acquisitions? CEO overconfidence and the market's reaction |journal=Journal of Financial Economics |date=2008 |volume=89 |issue=1 |pages=20–43 |url=https://econpapers.repec.org/article/eeejfinec/v_3a89_3ay_3a2008_3ai_3a1_3ap_3a20-43.htm|doi=10.1016/j.jfineco.2007.07.002 |s2cid=12354773 }}{{cite journal |last1=Twardawski |first1=Torsten |last2=Kind |first2=Axel |title=Board overconfidence in mergers and acquisitions |journal=Journal of Business Research |date=2023 |volume=165 |issue=1 |url=https://www.sciencedirect.com/science/article/pii/S0148296323003843|doi=10.1016/j.jbusres.2023.114026|url-access=subscription }} and stock market bubbles and crashes.

Strikes, lawsuits, and wars could arise from overplacement. If plaintiffs and defendants were prone to believe that they were more deserving, fair, and righteous than their legal opponents, that could help account for the persistence of inefficient enduring legal disputes.{{cite journal|last1=Thompson|first1=Leigh|last2=Loewenstein|first2=George|title=Egocentric interpretations of fairness and interpersonal conflict|journal=Organizational Behavior and Human Decision Processes|volume=51|issue=2|year=1992|pages=176–197|url=https://www.andrew.cmu.edu/user/gl20/GeorgeLoewenstein/Papers_files/pdf/EgocentricInterpretationsFairness.pdf|doi=10.1016/0749-5978(92)90010-5|url-status=live|archiveurl=https://web.archive.org/web/20141107192223/https://www.andrew.cmu.edu/user/gl20/GeorgeLoewenstein/Papers_files/pdf/EgocentricInterpretationsFairness.pdf|archivedate=2014-11-07}}

If corporations and unions were prone to believe that they were stronger and more justified than the other side, that could contribute to their willingness to endure labor strikes.{{cite journal|last1=Babcock|first1=Linda C.|last2=Olson|first2=Craig A.|title=The Causes of Impasses in Labor Disputes|journal=Industrial Relations|volume=31|issue=2|year=1992|pages=348–360|doi=10.1111/j.1468-232X.1992.tb00313.x|s2cid=154389983}}

If nations were prone to believe that their militaries were stronger than were those of other nations, that could explain their willingness to go to war.{{cite book|last=Johnson|first=Dominic D. P.|title=Overconfidence and War: The Havoc and Glory of Positive Illusions |url=https://books.google.com/books?id=Ccu7OhgusaAC|year=2004|publisher=Harvard University Press|isbn=978-0-674-01576-0}}

Overprecision could have important implications for investing behavior and stock market trading. Because Bayesians cannot agree to disagree,{{cite journal|last1=Aumann|first1=Robert J.|title=Agreeing to Disagree|journal=The Annals of Statistics|volume=4|issue=6|year=1976|pages=1236–1239|doi=10.1214/aos/1176343654|doi-access=free}} classical finance theory has trouble explaining why, if stock market traders are fully rational Bayesians, there is so much trading in the stock market. Overprecision might be one answer.{{cite journal|last1=Daniel|first1=Kent|last2=Hirshleifer|first2=David|last3=Subrahmanyam|first3=Avanidhar|title=Investor Psychology and Security Market Under- and Overreactions|journal=The Journal of Finance|volume=53|issue=6|year=1998|pages=1839–1885|doi=10.1111/0022-1082.00077|url=https://deepblue.lib.umich.edu/bitstream/2027.42/73431/1/0022-1082.00077.pdf|hdl=2027.42/73431|s2cid=32589687|doi-access=free}} If market actors are too sure their estimates of an asset's value is correct, they will be too willing to trade with others who have different information than they do.

Oskamp tested groups of clinical psychologists and psychology students on a multiple-choice task in which they drew conclusions from a case study.{{cite journal|last1=Oskamp|first1=Stuart|title=Overconfidence in case-study judgments|journal=Journal of Consulting Psychology|volume=29|issue=3|year=1965|pages=261–265|doi=10.1037/h0022125|pmid=14303514|url=http://faculty.fortlewis.edu/burke_b/Senior/BLINK%20replication/Overconfidence.pdf|url-status=live|archiveurl=https://web.archive.org/web/20141107153104/http://faculty.fortlewis.edu/burke_b/Senior/BLINK%20replication/Overconfidence.pdf|archivedate=2014-11-07}} Reprinted in {{cite book|editor-last1=Kahneman|editor-first1=Daniel|editor-last2=Slovic|editor-first2=Paul|editor-last3=Tversky|editor-first3=Amos|title=Judgment Under Uncertainty: Heuristics and Biases | publisher=Cambridge University Press| date=1982| isbn=978-0-521-28414-1|pages=287–293}} Along with their answers, subjects gave a confidence rating in the form of a percentage likelihood of being correct. This allowed confidence to be compared against accuracy. As the subjects were given more information about the case study, their confidence increased from 33% to 53%. However their accuracy did not significantly improve, staying under 30%. Hence this experiment demonstrated overconfidence which increased as the subjects had more information to base their judgment on.

Even if there is no general tendency toward overconfidence, social dynamics and adverse selection could conceivably promote it. For instance, those most likely to have the courage to start a new business are those who most overplace their abilities relative to those of other potential entrants. And if voters find confident leaders more credible, then contenders for leadership learn that they should express more confidence than their opponents in order to win election.{{cite journal|last1=Radzevick |first1=J. R. |last2=Moore |first2=D. A. |title=Competing To Be Certain (But Wrong): Social Pressure and Overprecision in Judgment |journal=Academy of Management Proceedings |volume=2009 |issue=1 |year=2009 |pages=1–6 |url=https://www.gsb.stanford.edu/sites/default/files/documents/ob_01_09_moore.pdf |doi=10.5465/AMBPP.2009.44246308 |url-status=dead |archiveurl=https://web.archive.org/web/20141107161146/https://www.gsb.stanford.edu/sites/default/files/documents/ob_01_09_moore.pdf |archivedate=2014-11-07 }} However, Overconfidence can be liability or asset during the political election. Candidates tend to lose advantage when verbally expressed overconfidence does not meet current performance, and tend to gain advantage express overconfidence non-verbally.{{cite journal |last1=Elizabeth.R |first1=Tenney |last2=David |first2=Hunsaker |last3=Nathan |first3=Meikle |title=Research: When Overconfidence Is an Asset, and When It's a Liability |journal=Harvard Business Review |date=2018 |url=https://hbr.org/2018/12/research-when-overconfidence-is-an-asset-and-when-its-a-liability}}

Overconfidence can be beneficial to individual self-esteem as well as giving an individual the will to succeed in their desired goal. Just believing in oneself may give one the will to take one's endeavours further than those who do not.{{cite journal|last2=Johnson|first2=Dominic D. P.|last1=Fowler|first1=James H.|title=On Overconfidence|journal=Seed Magazine|date=2011-01-07|issn=1499-0679|url=http://seedmagazine.com/content/article/on_overconfidence/|url-status=unfit|archiveurl=https://web.archive.org/web/20110812213158/http://seedmagazine.com/content/article/on_overconfidence/|archivedate=2011-08-12|access-date=2011-08-14}}

=== Overconfidence among experts ===

Kahneman and Klein further document how most experts can be beaten by simple heuristics developed by intelligent lay people. Genuine expert intuition is acquired by learning from frequent, rapid, high-quality feedback about the quality of previous judgments.{{cite Q|Q35001791}} Few professionals have that. Those who master a body of knowledge without learning from such expertise are called "respect experts" by Kahneman, Sibony, and Sunstein. With some data, ordinary least squares (OLS) models often outperform simple heuristics. With lots of data, artificial intelligence (AI) routinely outperforms OLS.{{cite Q|Q107108799}}

Very high levels of core self-evaluations, a stable personality trait composed of locus of control, neuroticism, self-efficacy, and self-esteem,{{cite book|last1=Judge|first1=Timothy A.|last2=Locke|first2=Edwin A.|last3=Durham|first3=Cathy C.|year=1997|chapter=The dispositional causes of job satisfaction: A core evaluations approach|title=Research in Organizational Behavior|volume=19|pages=151–188|publisher=Elsevier Science |isbn=978-0762301799}} may lead to the overconfidence effect. People who have high core self-evaluations will think positively of themselves and be confident in their own abilities, although extremely high levels of core self-evaluations may cause an individual to be more confident than is warranted.

The following is an incomplete list of events related or triggered by bias/overconfidence and a failing (safety) culture:{{Cite web|title=Overconfidence|url=https://www.psychologytoday.com/blog/perfectly-confident/201801/overconfidence|access-date=2021-03-08|website=Psychology Today|language=en-US}}

• Chernobyl disaster{{Cite web|last=Rimondi|first=Christopher|date=2019-08-06|title=Chernobyl, Anatoly Dyatlov and Engineering Arrogance|url=https://medium.com/@chris.rimondi/chernobyl-anatoly-dyatlov-and-engineering-arrogance-a3cc5272f1bf|access-date=2021-03-08|website=Medium|language=en}}
• Sinking of the Titanic
• Space Shuttle Challenger disaster
• Space Shuttle Columbia disaster
• Deepwater Horizon oil spill
• Titan submersible implosion

{{Portal|Psychology}}

{{Columns-list|

• {{annotated link|List of cognitive biases}}
• {{annotated link|Calibrated probability assessment}}
• {{annotated link|Confidence}}
• {{annotated link|Dunning–Kruger effect}}
• {{annotated link|False consensus effect}}
• {{annotated link|Hard–easy effect}}
• {{annotated link|Hindsight bias}}
• {{annotated link|Heuristics in judgment and decision-making}}
• {{annotated link|Impostor syndrome}}
• {{annotated link|Misplaced loyalty}}
• {{annotated link|Optimism bias}}
• {{annotated link|Depressive realism}}
• {{annotated link|Intellectual humility}}}}

• {{cite Q|Q118105219}}

== Notes ==

{{Reflist|30em}}

• {{cite journal|last1=Larrick|first1=Richard P.|last2=Burson|first2=Katherine A.|last3=Soll|first3=Jack B.|title=Social comparison and confidence: When thinking you're better than average predicts overconfidence (and when it does not)|journal=Organizational Behavior and Human Decision Processes|volume=102|issue=1|year=2007|pages=76–94|doi=10.1016/j.obhdp.2006.10.002}}
• {{cite book | last=Baron| first=Johnathan| publisher=Cambridge University Press |title=Thinking and Deciding|date=1994|isbn=978-0-521-43732-5|pages=219–224}}
• {{cite book|last1=Gilovich|first1=Thomas|last2=Griffin|first2=Dale|last3=Kahneman|first3=Daniel|title=Heuristics and Biases: The Psychology of Intuitive Judgment|url=https://books.google.com/books?id=FfTVDY-zrCoC|year=2002|publisher=Cambridge University Press|isbn=978-0-521-79679-8}}
• {{cite book | last=Sutherland| first=Stuart|title=Irrationality | publisher=Pinter & Martin| date=2007| isbn=978-1-905177-07-3|pages=172–178}}

{{Biases}}

{{Authority control}}

Category:Cognitive biases

Category:Memory biases