Never be afraid to fail. Failure is only a stepping stone to improvement. Never be overconfident because that will block your improvement. - Tony Jaa
What is overconfidence?
As per the definition- the
quality of being too confident; excessive confidence is called the
overconfidence. The definition says it’s a quality but in real life this
quality is dragging us from our own improvement and is lacking us from the real
success.
Most of the time we are too much
confident(Overconfident) that we are right in our decision, in our way of
thinking or in our way of work. We don’t even think from other person point of
view(Empathy).
Due to this kind of overconfident, we don’t get
the wisdom of the world, we don’t expand our mental or thinking ability, we
stop thinking in a broad way. We just behave like the frog who knows only till
the periphery of the well. Out of the well, he thinks there is no world.
Daniel
Kahneman
We're generally overconfident in our opinions and our impressions and judgments. - Daniel Kahneman
Normally we are overconfident while giving opinions and making
judgement, it is the default human behavior.
Maria Konnikova, the writer of the book Mastermind-how
to think like Sherlock Holmes
how do we make sure we don’t fall victim to overly confident thinking, thinking that forgets to challenge itself on a regular basis? No method is foolproof. In fact, thinking it foolproof is the very thing that might trip us up. Because our habits have become invisible to us, because we are no longer learning actively and it doesn’t seem nearly as hard to think well as it once did, we tend to forget how difficult the process once was. We take for granted the very thing we should value. We think we’ve got it all under control, that our habits are still mindful, our brains still active, our minds still constantly learning and challenged—especially since we’ve worked so hard to get there—but we have instead replaced one, albeit far better, set of habits with another. In doing so we run the risk of falling prey to those two great layers of success: complacency and overconfidence. These are powerful enemies indeed.
Maria continues overconfidence
as –
Confidence in ourselves and in our skills, allows us to push our limits and achieve more than we otherwise would, to try even those borderline cases where a less confident person would bow out. A bit of excess confidence doesn’t hurt; a little bit of above-average sensation can go a long way toward our psychological well-being and even our effectiveness at problem solving. When we’re more confident, we take on tougher problems than we otherwise might. We push ourselves beyond our comfort zone.
Confidence is good for our
growth, it allows us to work hard and grow more but overconfidence affect us psychologically,
it makes us to feel that we only do it and make us rude and arrogant.
But there can be such a thing as being too certain of yourself: overconfidence, when confidence trumps accuracy. We become more confident of our abilities, or of our abilities as compared with others’, than we should be, given the circumstances and the reality. The illusion of validity grows ever stronger, the temptation to do things as you do ever more tempting. This surplus of belief in ourselves can lead to unpleasant results—like being so incredibly wrong about a case when you are usually so incredibly right, thinking a daughter is a husband, or a loving mother, a blackmailed wife.
Studies have shown that
with experience, overconfidence increases instead of decreases.
The more you know and the better you are in reality, the more likely you are to overestimate your own ability—and underestimate the force of events beyond your control.
In one study, CEOs were
shown to become more overconfident as they gained mergers and acquisitions
experience: their estimates of a deal’s value become overly optimistic
(something not seen in earlier deals).
In another, in
contributions to pension plans, overconfidence correlated with age and
education, such that the most overconfident contributors were highly educated
males nearing retirement. In research from the University of Vienna,
individuals were found to be, in general, not overconfident in their risky
asset trades in an experimental market—until, that is, they obtained considerable
experience with the market in question. Then levels of overconfidence rose
apace.
What’s more, analysts who
have been more accurate at predicting earnings in the prior four quarters have
been shown to be less accurate in subsequent earnings predictions, and
professional traders tend to have a higher degree of overconfidence than
students. In fact, one of the best predictors of overconfidence is power, which
tends to come with time and experience.
Maria suggests in her book
Overconfidence causes blindness, and blindness in turn causes blunders. We become so enamored of our own skill that we discredit information that experience would otherwise tell us shouldn’t be discredited—even information as glaring as Watson telling us that our theories are “all surmise,” as he does in this case—and we proceed as before. We are blinded for a moment to everything we know about not theorizing before the facts, not getting ahead of ourselves, prying deeper and observing more carefully, and we get carried away by the simplicity of our intuition.
Overconfidence replaces dynamic, active investigation with passive assumptions about our ability or the seeming familiarity of our situation. It shifts our assessment of what leads to success from the conditional to the essential. I am skilled enough that I can beat the environment as easily as I have been doing. Everything is due to my ability, nothing due to the fact that the surroundings just so happened to provide a good background for my skill to shine. And so I will not adjust my behavior. Holmes
Overconfident traders have been shown to perform worse than their less confident peers. They trade more and suffer lower returns. Overconfident CEOs have been shown to overvalue their companies and delay IPOs, with negative effects. They are also more likely to conduct mergers in general, and unfavorable mergers in particular. Overconfident managers have been shown to hurt their firms’ returns. And overconfident detectives have been shown to blemish their otherwise pristine record through an excess of self-congratulation.
What Charlie Munger said on overconfidence:
Similarly, the hedge fund known as ‘Long-Term Capital Management’ recently collapsed, through overconfidence in its highly leveraged methods, despite I.Q.’s of its principals that must have averaged 160. Smart, hard-working people aren’t exempted from professional disasters from overconfidence. Often, they just go aground in the more difficult voyages they choose, relying on their self-appraisals that they have superior talents and methods.
How you can detect the overconfidence?
Maria suggests some solution
points to identify the overconfidence, let’s explore:
The best remedy for
overconfidence is knowing when it is most likely to strike.
Spotting overconfidence,
or the elements that lead to it, in others is one thing; identifying it in
ourselves is something else entirely, and far more difficult.
Four sets of circumstances
tend to predominate.
1.
overconfidence is most
common when facing difficulty:
For instance, when we must make a judgment on a case where
there’s no way of knowing all the facts. This is called the hard-easy effect. We tend to be underconfident on easy problems
and overconfident on difficult ones. That means that we underestimate our
ability to do well when all signs point to success, and we overestimate it when
the signs become much less favorable, failing to adjust enough for the change
in external circumstances.
Repeatedly, researchers
have found that as the difficulty of the judgment increases, the mismatch
between confidence and accuracy (overconfidence) increases dramatically.
One domain where the
hard-easy effect is prevalent is in the making of future predictions - Consider
the stock market. It’s impossible to predict the movement of a stock. Sure, you
might have experience and even expertise - but you are nevertheless trying to
predict the future.
people who at times have
outsized success also have outsized failures? The more successful you are, the
more likely you are to attribute everything to your ability—and not to the luck
of the draw, which, in all future predictions, is an essential part of the
equation. (It’s true of all gambling and betting, really, but the stock market
makes it somewhat easier to think you have an inside, experiential edge.)
2.
overconfidence increases with familiarity
If I’m doing something for the first time, I will likely be
cautious. But if I do it many times over, I am increasingly likely to trust in
my ability and become complacent, even if the landscape should change. And when
we are dealing with familiar tasks, we feel somehow safer, thinking that we
don’t have the same need for caution as we would when trying something new or
that we haven’t seen before.
In a classic example, Ellen Langer found that people were more
likely to succumb to the illusion of control (a side of overconfidence whereby
you think you control the environment than you actually do) if they played a
lottery that was familiar versus one that was unknown.
It’s like the habit formation that I have explained in this post.
Each time we repeat something, we become better acquainted with
it and our actions become more and more automatic, so we are less likely to put
adequate thought or consideration into what we’re doing.
3.
overconfidence increases with information
If I know more about something, I am more likely to think I can
handle it, even if the additional information doesn’t actually add to my
knowledge in a significant way.
This is the exact effect we observed with the clinicians who were
making judgments on a case, the more information they had about the patient’s
background, the more confident they were in the accuracy of the diagnosis, yet
the less warranted was that confidence.
4. overconfidence increases with action
As we actively engage, we become more confident in what we are
doing.
In one classic study, Langer found that individuals who flipped
a coin themselves, in contrast to watching someone else flip it, were more
confident in being able to predict heads or tails accurately, even though,
objectively, the probabilities remained unchanged.
Another instance found when, individuals who chose their own
lottery ticket were more confident in a lucky outcome than they were if a
lottery ticket was chosen for them.
Let’s take the case of
traders once again. The more they trade, the more confident they tend to become
in their ability to make good trades. As a result, they often overtrade, and in
so doing undermine their prior performance.
You should always remind yourself
about our fallibility and ability to deceive ourselves into a very confident
blunder.
Let me end the post with
the excellent quote by
The problem with the world is that the intelligent people are full of doubts, while the stupid ones are full of confidence.
Keep reading, Keep learning
-Mahesh
-Mahesh
