Multiplication Center

7 Deadly Assumptions #6 – The Overconfidence Effect

June 4, 2015

American_Idol_Experience_stageIf you’ve ever watched American Idol, America’s Got Talent, or any of the other talent competition “reality” shows, you’ve probably taken some degree of pleasure from watching grossly unqualified contestants crash and burn during auditions (you can admit it, its okay).  I’ve seen many of these, some of which were extremely painful to watch.  Often the spectacle has left me thinking one (or more) of the following:

These people are just grasping at their “15 minutes of fame”.  Since William Hung’s gut-wrenching rendition of She Bangs on the 3rd season of American Idol launched his arguably undeserved music career, thousands of sub-par performers have hoped a spot in front of the camera would fulfill their wildest dreams.  They know they will never win the contest; they’re just hoping to win the interest of the viewing public.

The producers are just trying to “up” the entertainment value.  Let’s face it, watching a long line of competent performers stream through auditions doesn’t make for great TV.  It’s the surprises, both good and bad, that keep people coming back week after week, season after season.  The producers choose to air the worst of the worst because they know it sells.

The performers really believe they’re much better than they are.  It is possible that some of the people who walk into these audition rooms believe they have what it takes, even though they grossly overestimate their abilities.  They suffer from an “overconfidence effect” so powerful that, when confronted with reality, assume the judges aren’t worth their salt when it comes to recognizing talent.

This overconfident effect isn’t limited to aspiring performers, it represents a deadly assumption that threatens to limit the thinking of individuals and teams across all domains and industries.

What Is the Overconfidence Effect?

The overconfidence effect is a cognitive bias in which someone believes subjectively that his or her knowledge or judgment is better or more reliable than it objectively is.  According to an article in Psychology Today, the overconfidence effect does not deal with whether single estimates are correct or not. Rather, it measures the difference between what people really know and what they think they know. What’s surprising is this: Experts suffer even more from the overconfidence effect than laypeople do.

As an example, think back to the Curse of Knowledge from a previous post.  In an experiment, participants were asked to predict their ability to tap out a song that their listeners could identify correctly.  The predictions were done prior to the experiment.  On average the “tappers” believed their success rate to be 50%.  Their actual success rate was 2.5%.  That’s a significant degree of overconfidence!

In one survey published in a Swedish Psychology journal, 93 percent of U.S. students estimated to be “above average” drivers. Without the overconfidence effect, that figure should be exactly 50 percent—after all, the statistical “median” means 50 percent should rank higher and 50 percent should rank lower, right?  In other surveys, 68 percent of the faculty at the University of Nebraska rated themselves in the top 25 percent for teaching ability, while a quarter of MBA students believe they are in the top 1 percent in leadership ability.  Let that math sink in for a moment.

The Psychology Today article goes on to state, “What makes the overconfidence effect so prevalent and its effect so confounding is that it is not driven by incentives; it is raw and innate. And it’s not counterbalanced by the opposite effect, “underconfidence,” which doesn’t exist. No surprise to some readers: the overconfidence effect is more pronounced in men—women tend not to overestimate their knowledge and abilities as much. Even more troubling: Optimists are not the only victims of the overconfidence effect. Even self-proclaimed pessimists overrate themselves—just less extremely.”

Why Do We Assume We Know What We Don’t

Researchers at Ohio State University studied overconfidence among college students using a test of financial knowledge. The researchers created a cognitive model that explains why overconfidence occurs.  They called the model, the Assess-Search-Construct (ASC) model.

According to ASC, there are three basic steps people go through to make a choice and appraise their confidence in it.

  1. We assess all options and assume the right option (our ‘first guess’) based on the greatest feeling of familiarity.
  2. We search our memory for facts that relate to the first guess.
  3. Based on the facts retrieved from memory, we build an explanation as to why that first guess is true.

ASC does not say overconfidence happens in every instance. People can feel like they are guessing in some cases, and be completely certain in others.  In this case, no facts are retrieved from memory. The memory search fails. Without facts, the person cannot explain why his or her choice is true. The end choice feels like a guess. If possible, the individual might do more research, or they might ask someone else for more information.

At the other extreme, facts about the topic flood in from memory. An explanation forms in the person’s mind that really seems right. They feel extremely confident that their initial impression is spot on.

There are a couple of points in this cognitive process that lead to overconfidence:

  • People tend to focus only on their first guess. If there is no compelling reason to doubt the “high-familiarity” option, people almost completely ignore the other alternatives. This is called “option fixation.”
  • People believe their own explanations are more detailed and complete than they actually are. This raises their level of confidence in their first guess, further biasing them against other options.

Potential Problems for Strategic Thinking

The overconfidence effect can kill strategic thinking in many ways.  Here are a few:

  • Taking too much risk. Calculated risk can be a good thing.  When teams and organizations become too risk-averse, progress and impact can be halted.  But assuming we know more about the future than we actually do can cause leaders to take on too much risk, and the results can be devastating.
  • Stopping the pursuit of understanding. The bottom line is this: if I’m overconfident in my knowledge of something, I will not invest in understanding it further.  If one of the key character traits of an effective leader is having a “learner’s mind,” then the overconfidence effect can diminish the effectiveness of that leader.
  • Lack of contingency planning. This one is related to the first problem above.  Not only does this assumption cause leaders to take unnecessary risk, it also discourages us from thinking about other options in case something goes wrong.
  • Narrow framing This goes without saying, but if we become overconfident in one solution (option fixation), we will naturally narrow our field of view when it comes to making strategic decisions.

How to Overcome the Overconfidence Effect in Strategic Thinking

Like every other deadly assumption, there are ways to overcome the overconfidence effect if you engage your strategic process with intentionality.  Here are a few things to help your team overcome this assumption:

Always choose between at least two options (don’t get caught narrow framing!).  When you’re making strategic decisions as a team, make sure there are at least two, equally viable options that are under consideration.  Take the time to explore each option in depth and be able to explain why each choice is the best option.  Compare and contrast them to one another, exploring them from multiple angles.  The process of investing in multiple possibilities will stretch your thinking and challenge you to evaluate what you really know.

Develop a systematic approach to exploring and making decisions.  If every strategic decision you make is approached differently, the only consistent factor in those decisions will likely be what you (think you) know.  Instead, develop a framework for exploring and making decisions that builds in elements to overcome the overconfidence effect (and other assumptions).  If you have a solid process for making decisions, you’ll be much less likely to fall victim to deadly assumptions.

Engage others in the process.  If you’ve followed this blog series, you’ve heard this one several times.  One of the greatest things you can do to make better decisions and avoid deadly assumptions is to engage “outsiders” in your strategic conversations.  Leaders from the outside are much more likely to identify and call out your assumptions than members of your team who are likely operating under the same assumptions.

Let HUB Keep Your Grounded

If you’re facing some key strategic decisions and don’t want to allow deadly assumptions to limit the thinking of your team, you should consider investing in Leadership Network’s HUB experience.  HUB includes the elements you need to bypass the overconfidence effect, including:

  • A proven process that guides your team toward implementation and impact.
  • Multiple leadership teams representing different ministry contexts and perspectives.
  • A variety of “expert voices” in the conversation.

For more information on HUB and the topics we will launch with in November, click on the banner below.

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This blog is part of a 7-post series. Click to read each of the posts: #1 Anchoring, #2 Framing, #3 Confirmation Bias, #4 Others Understand Things the Way I Do, #5 I Knew it All Along, #6 The Overconfidence Effect, #7 Commitment Escalation.

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