The most common way in which overconfidence has been studied is
by asking people how confident they are of specific beliefs they hold or
answers they provide. The data show that confidence systematically
exceeds accuracy, implying people are more sure that they are correct
than they deserve to be. If human confidence had perfect calibration,
judgments with 100% confidence would be correct 100% of the time, 90%
confidence correct 90% of the time, and so on for the other levels of
confidence. By contrast, the key finding is that confidence exceeds
accuracy so long as the subject is answering hard questions about an
unfamiliar topic. For example, in a spelling task, subjects were correct
about 80% of the time, whereas they claimed to be 100% certain.
Put another way, the error rate was 20% when subjects expected it to be
0%. In a series where subjects made true-or-false responses to general
knowledge statements, they were overconfident at all levels. When they
were 100% certain of their answer to a question, they were wrong 20% of
the time.
Overconfidence distinctions
Overestimation
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
Illusion of control describes the tendency for people to behave as if they might have some control when in fact they have none.
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.
Planning fallacy
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. It is strongest for long and complicated tasks, and disappears or reverses for simple tasks that are quick to complete.
Contrary evidence
Wishful-thinking
effects, in which people overestimate the likelihood of an event
because of its desirability, are relatively rare.
This may be in part because people engage in more defensive pessimism in advance of important outcomes, in an attempt to reduce the disappointment that follows overly optimistic predictions.
Overprecision
Overprecision is the excessive confidence that one knows the truth. For reviews, see Harvey (1997) or Hoffrage (2004).
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.
One possible explanation for this is that item-confidence judgments were
inflated by overprecision, and that their judgments do not demonstrate
systematic overestimation.
Confidence intervals
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.
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
Overplacement
is perhaps the most prominent manifestation of the overconfidence
effect. Overplacement is a judgment of your performance compared to
another. 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. One explanation for
this theory is its ability to self-enhance.
Manifestations
Better-than-average effects
Perhaps the most celebrated better-than-average finding is Svenson's
(1981) finding that 93% of American drivers rate themselves as better
than the median.
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." Overplacement has likewise been documented in a wide variety of other circumstances.
Kruger (1999), 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.
Comparative-optimism effects
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.
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).
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.
Positive illusions
Taylor and Brown (1988) 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.
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.
Practical implications
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."—Daniel Kahneman
Overconfidence has been called the most "pervasive and potentially
catastrophic" of all the cognitive biases to which human beings fall
victim.
It has been blamed for lawsuits, strikes, wars, 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.
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.
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.
Overprecision could have important implications for investing
behavior and stock market trading. Because Bayesians cannot agree to
disagree,
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.
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 (1965) tested groups of clinical psychologists and psychology students on a multiple-choice task in which they drew conclusions from a case study.
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.
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.
Individual differences
Very high levels of core self-evaluations, a stable personality trait composed of locus of control, neuroticism, self-efficacy, and self-esteem,
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.