What is Overconfidence Bias?
Overconfidence bias refers to the tendency of the person to wrongly evaluate his/her intellect or skills, they tend to overestimate that they have high abilities and talents. In other words, it refers to the egoistic belief that we are more capable than we really are. You are the victim of the overconfidence bias if you only rely on your perception of estimating something rather than relying on the real facts. Consider the example of the different types of viral pieces of information over the various social media platforms. Mostly people judge these pieces of information based on their personal opinions and beliefs and they immediately share them without cross-checking whether the information they are assuming to be true is really true or not. The overconfidence bias is the cause of these unwavering beliefs and opinions of the person. People tend to assume something as true based on their prior knowledge rather than reality. Here, in this article, we’ll learn more about the overconfidence bias and the various types and examples of the overconfidence bias.
According to American Psychological Association,
Overconfidence is a cognitive bias characterized by an overestimation of one’s actual ability to perform a task successfully, by a belief that one’s performance is better than that of others, or by excessive certainty in the accuracy of one’s belief.”
Types of Overconfidence Bias
As the name clearly suggests, it means that the person overestimates his/her skills and abilities. In other words, a person tends to believe that he/she is better at doing certain tasks than he/she actually is. Due to overestimation, a person fails to accurately analyse his/her chances of winning or losing a particular task. Let’s understand it with an example, an experimenter asks person X how many chocolates he can eat in one go. Person X says that he can eat 10 chocolates in one go. When tested, it was found that person X was able to eat only 6 chocolates. This means that person X has overestimated himself/herself. The chances of occurrence of the overestimation are high when the individual who is making the judgement is not much skilled, and the task seems easier but is complicated. Overestimation is not just limited to the wrong assessment of one’s chance of winning any task, but it is also observed in many other domains such as planning fallacy, the illusion of control, and contrary evidence. Let’s discuss them in brief.
i. Planning Fallacy
It refers to the tendency of the person to overestimate his/her ability to finish the task in less time than the actual time it may take to accomplish the task. The chances of occurrence of this fallacy are high if the task is lengthy and complicated.
ii. Illusion of Control
It refers to the tendency of the person to believe that they have full control over something, while in reality, it is not. The illusion of control makes people think that everything will run smoothly as they have planned, but when they finally execute their plan it turns out that some things are not under their control, and they end up failing in their tasks.
iii. Contrary Evidence
Some people overestimate the probability of the occurrence of certain events based on their desires or beliefs.
Examples of Overestimation
- You must have encountered a person who assumes that he/she has a great sense of direction and refuse to take the help of the maps or ask the people for the directions while going on the unknown roads and then end up getting lost on the way. These people overestimate that they have a great sense of predicting the best routes even when they know nothing about the new areas.
- People who assume themselves as much smarter than their actual intellect abilities. These people overestimate that they can easily get admission to the top colleges or universities even when they are hardly able to pass the exams.
- The ones who think that they would remember everything in the exams that they had read once and avoid revising the learnt concepts. Later in the exam, they realize that they are not able to recall what they studied and end up getting low marks on the exams. Here, the person has overestimated his ability to memorise.
- A person who assumes that he/she is a great boxer and will always win does not matter who the opponent is, this person then ends up challenging the one who possesses higher boxing skills. Later, after losing the match he/she realizes that he/she overestimated his her skills. In this example, the person has wrongly assumed his/her athletic abilities.
Overprecision refers to the overconfidence of the person that he/she accurately knows the future outcomes. People who experience this type of overconfidence strongly believe that they possess special intuitions and their decision would always be right.
Examples of Overprecision
- Casino gambling is the prime example of overprecision. This form of overconfidence makes people assume that they can accurately judge what will appear next on the deck of cards or the roulette wheel. Due to overprecision bias, people end up losing a huge amount of their money in gambling.
- Overprecions can make people take extremely risky decisions in the stock market because of their overconfidence in positive outcomes from that decision, they strongly believe that they know how the stock market works.
- People who believe that they exactly know which candidate or party will win the elections even when they are not even the election researcher, these people exhibit the overprecision bias. People like these tend to predict the outcome based on their little knowledge rather than considering the facts and statistical results.
- A politician who does not agree to campaign for the votes in the elections because of his/her confidence that he/she will definitely win the election is also an act of overprecision. This overconfidence in his/her win can lead to his/her failure in the elections.
Overplacement can be considered a prominent type of overconfidence bias. People that exhibit this effect consider something as better than the other thing. The occurrence of the over placement bias is more often seems in simple tasks, i.e., the tasks that the person believes that he/she can complete easily. Following are some subsections of the over placement effect.
It refers to the act of placing oneself (rating oneself) above the others, i.e., the person thinks of himself/herself as superior to the others. People consider that he/she possesses high skills and abilities than others. The best example of the better-than-average bias is the findings of a study that showed that almost 73 per cent of Americans consider that they are above-average drivers. An American psychologist, Justin Kruger said that this effect is more often seen in the easy tasks in which people feel competent and can easily get the success; however, if the task is difficult, the effect gets reversed and the people start believing themselves as lower than the others.
ii. Comparative-Optimism Effect
Due to the competitive-optimism effect, some people are highly likely to think that good thing happen to them than other people, and it is less likely that bad things happen to them than others. People think that the chances of occurrence of ordinary events, for example living more than the 6o years, are higher for them than the others, and the chances of occurrence of the rare events, for example, living more than 100 years is less for them than to the others.
iii. Positive Illusions.
According to the researchers Taylor and Brown, some people hold overly positive beliefs about their character. They overly assume that they are very ethical and can never do anything wrong. Although there are several benefits of optimistic thinking, the positive illusion can distract the person from accurately analysing reality. People often face this bias as it let them feel confident and maintain high self-esteem of themselves.
Examples of Overplacement
- A student who thinks that he/she is the only (or the most) intelligent person in his/her class or the school tends to possess this type of overconfidence bias, i.e., over placement. These students keep on believing that they are the smartest even if they are scoring the lowest grades in the classroom.
- A person who believes that he is the best singer even if he/she possesses zero singing talent. He/she compares himself/herself with professional singers. There are several examples, where people like these dare to participate in singing competitions and end up looking stupid in front of the audience.
- Some employees think of themselves as superior to other employees. These employees think of themselves as extremely valuable to their organization that they begin breaking the several rules and regulations of the organization thinking that the employer can never fire them, they even start demanding extra raises or other benefits; however, their over-placement of themselves over the other employees makes them being fired from the organization.
- Some people who do not even hold any expertise or specialization think that you should follow the remedies that they have suggested to cure any illness rather than the professional in that field. These people consider themselves more intelligent than the professionals holding credentials and expertise in that particular field. Due to this over-placement effect, these people even force their opinions on the others and deny to agree that there is any problem with their opinions.
Traits of Overconfidence Bias
Whether you are a fresher in a particular field or hold expertise in that field, you are likely to commit several errors due to the overconfidence bias. Overconfidence bias deeply impacts the decision making of the person. Most of us may think that we are not overconfident, here are some of the examples of certain events that reflect how the overconfidence bias occurs in our daily life. You can analyse whether you exhibit overconfidence bias or not based on the following examples.
1. Refusing to Learn
Most people consider that they have special abilities and they are above average. For example, at work, some employees assume that they are better than the other employees, and due to the overconfidence in their abilities they don’t find the need to learn new things and improve their skills. This thinking of employees lowers their productivity and they end up getting low increments and promotions. Most people blame their managers or the companies for their lower increments without realising that the reason behind this is their overconfidence. It is generally seen that people who lost their jobs in late adulthood find it very hard to get another job that pays them equal or more because they never focused on improving their skillset because of their overconfidence.
2. Estimating Timelines Wrongly
Overconfidence bias makes you form wrong estimations, which can drastically impact your daily life. For example, you overestimate the duration of completing the tasks. You think that you can finish all the tasks in a lesser time than the time you actually needed to get them done. Due to this wrong estimation, you always end up having the number of incomplete tasks that you thought you would have finished by the end of the day. Though there could be a number of reasons behind your tasks being delayed if you are always left with a number of incomplete tasks it’s a sign that you fell for the overconfidence bias.
3. Overestimating Your Abilities
Because of the overconfidence bias, people overestimate their abilities, and they tend to think that they can do more than what they are really capable of doing. The best example of this could be a person who just joined the gym and due to his overconfidence, he tries to lift the heavyweights more than his limits and end up facing severe injuries. Another example of overestimating one’s abilities could be trying to become an entrepreneur. Most people leave their jobs and think of starting their own business and dream of naming their business a huge success, but only a few of them get successful. This is because not every person has the potential to smoothly run a business, some people overestimate their abilities and think that they possess great leadership and entrepreneur skills. Only after failing in the business do they realise that they overestimated their abilities and they need to learn more skills and strategies. Overconfidence bias could be one of the prime reasons that nearly 90 per cent of the startups fail. Well, this does not mean that you should stop dreaming big, and should not try attempting entrepreneurship, but one should understand the difference between confidence and overconfidence.
4. Overestimating the Ability to Recall
Most students went to give the exams after reading the syllabus just once. They overestimate their abilities to memorize and only in the exams do they realize that they are not able to recall what they have learnt. Due to this overconfidence in their ability to recall, they end up scoring less in the exams or some even fail. People fail to understand that there are various cognitive processes that involve in learning. As supported by several studies, the human brain better memorize something if you write it down. Hence, one should stop assuming that they will forever remember anything they read once, instead, to remember better they should write it once.
5. Assuming Oneself as Experts
It is often seen at the workplaces that some employees start considering themselves as experts after some mid-level experience. In several other industries or fields such as the stock market, management, hospitality, and sports, there is a number of people who thinks of themselves as better than the professionals. For example, some newbie in stocks starts taking bold risks as they think that they can accurately predict the market, but only when they end up losing huge money do they realise that they fell victim to the overconfidence bias. A newbie boxer challenges the experienced boxer thinking that he can easily win the match only after the fight does he realise that he needs a lot more training. There are several examples like that. Overconfidence bias can hinder your growth. If the person believes that he/she is already skilled, he/she will stop putting effort into learning anything new and always remain in the same position throughout his/her life.
Overconfidence Bias Examples in Daily Life
1. Overestimating Morality
Due to overconfidence bias, some people not only overestimate their abilities but also their character. These people tend to believe themselves as more ethical than their peers or colleagues. For example, a survey was conducted among some business persons and they were asked to rate how ethical they are. The results showed that 50 per cent of the people considered themselves in the top 10 per cent ethically. People tend to take various ethical problems lightly due to the overconfidence bias, they make almost every decision based on the assumption that they are ethical therefore they will always make the right decisions when they will face the ethical problems. This may seem hard to believe that some people even overestimate the resources and the time they spend doing the charities or volunteering. They become so overconfident in their moral character and values that they tend to act unethically without being aware.
2. In Investing
Overconfidence bias can be very dangerous in behavioural finance. Behavioural science involves studying the behaviour of investors and other people related to finances through the psychological perspective. Investors are highly likely to fall victim to the overconfidence bias. Most of the time, investors overestimate their ability to predict the market. Some of the investors even believe that they are gifted with the special abilities and intuitions to accurately predict the outcomes of a particular investment. Investors who fell the victim to the overconfidence bias think that their decision is always better than the other people in the market. In a study, some investors were asked to rate themselves on the basis of their investing skills. The findings of the study revealed that nearly 75 per cent of the investors have rated themselves above average, and 25 per cent of the investors have rated themselves as average, i.e., no one has rated themselves below average.
3. At the Workplace
Overconfidence bias in the workplace can negatively impact the growth of the organization. Some employees or managers are likely to make some bad decisions under the influence of overconfidence bias. Hence, it is very crucial to accurately evaluate how the management approaches the various problems and formulate strategies to tackle the various problems and ethical issues at the workplace.
Examples of Overconfidence Bias in History
1. The Mount Everest Disaster
In the 1996 incident, a group of people who tried to scale Mount Everest had to face the drastic consequence due to their overconfidence bias. They faced a snowstorm on their way that result in the death of the eight people. Two people among the eight people were the professional mountaineers who were the group leaders and they had scaled Mount Everest a number of times before too. To safely finish the descent their deadline to reach the peak was 14:00. Due to some delays and snowstorms the team faced some difficulties during the ascent. They had already crossed the deadline of 14:oo, but the two elite mountaineers decided to proceed. The two were confident that they will be able to scale safely, but this overconfidence lead to their death as the team faced a strong snowstorm. Although there are many other reasons behind the occurrence of this disaster, their decision to proceed further even when they crossed their deadline is considered one of the prime reasons.
2. Sydney Opera House Construction
Sydney Opera House in Australia is well known for its beautiful structure. Its beauty grabs the attention of people all around the globe. While gazing at this beautiful structure people praise the construction of this structure. The unrealistic optimism of its constructors is the prime example of the overestimation bias. It is said that the architects of the Sydney Opera House estimated that it would take 4 years and 7 million Australian dollars to finish the construction of the opera house. But, their estimation turned out to be wrong, and that too by a large difference. It took nearly 14 years for its completion and the 102 million Australian dollars for the entire project.
3. Boston Big Dig Highway
Boston Big Dig is the chief highway of Boston. Like the case of the Opera Sydney House, the construction of the Boston Big Dig also faces a similar bias of unrealistic optimism. It was estimated that the project would cost 2.8 billion dollars; however, the completion of the project costs 15 billion dollars. Moreover, if we include the interests over the debt the total cost of the project turned out to be 22 billion dollars. Also, the project took nearly eight more years than the planned duration for its construction.
4. Chornobyl Disaster
The Chornobyl disaster is a nuclear accident that happened on 26 April 1986 at the Chornobyl nuclear plant. This disaster is considered among the worst nuclear accidents in history. After investigation, it was found that an employee permitted a test that the operation team was not fully sure of. Due to this test, the plant operated at a level that lies above the safety region. A warning was given by the safety design team, and they suggested terminating the plan. However, the confidence of the operation team due to the previous successes of the other tests leads them to continue the test, but this decision due to their overconfidence bias leads to a fatal disaster.
5. Space Mission Failure
A space programme of United Space, the Challenger Space Shuttles disaster in 1986 is also said to be the result of the overconfidence bias. Upon investigation, it was found that the malfunctioning in the O-rings, one of the parts of the shuttle result in the disaster. The manufacturer of that part warn the team that there could be certain malfunctioning in the o ring, but the team failed to consider that seriously and believe that the mission would be a success; however, the mission got failed due to the malfunctioning in the O-ring.
Like the Challenger Space Shuttle disaster, another space mission failure, i.e., the Columbia space shuttle disaster is also considered the result of the overconfidence bias. It is said that NASA engineers noticed breaking off of a piece of insulation, which was hitting the wing; however, the management did not pay much attention to it and they chose to proceed further with the mission. NASA management reasoned that even if the engineers would have tested that team could not do anything to fix that damage. But, the fact that no one bothered to check the damage even when it could risk the life of 7 astronauts is perplexing.
6. Professional’s Failure to Forecast
In an experiment, the experimenter asked the participants to forecast the possible oil prices after 5 tears from now. The participants involved both the economic experts and random people that had zero knowledge of economics. As expected, the random people’s forecast was completely random, but the shocking thing was that the forecast of the economic experts was also not satisfactory. In fact, there were not any significant differences in the forecast of the random people and the economic experts. Still, the experts strongly believed that their forest would match the real prices in future. Similar findings were seen in other experiments when the participants were asked to make predictions related to the stock and the finances.
How Can You Overcome Overconfidence Bias?
Most people refuse to believe that they possess overconfidence even when one can see the clear pieces of evidence. People fail to spot overconfidence because generally, the tendency to act overconfident arises from the subconscious of the person and the conscious of the brain fails to question it. Following are some of the ways that how one can avoid overconfidence bias.
i. Judge Your Own Decisions
Always question and challenge your decisions. Overconfidence bias makes you focus on just the pros of your decisions but when you challenge your decisions you will look at both the pros and the cons of your decisions. For example, if you ask yourself questions like that why would the hiring manager choose you, why would the customer buy your product and not of the competitors, what is unique about your business that it could surpass the competitors. there answer to these questions can give you a realistic view. In this way, you can restrict yourself from making the wrong decisions.
ii. Imagine the Consequences
One should always think of the consequences before making any decisions. When you focus on the consequence you tend to use various reasoning skills to analyse the decisions. For example, if you have decided to put a huge amount of money into a particular stock then imagine what could have happened if that decision of yours go wrong. When you imagine that you can lose a huge amount of your money if that decision failed you will restrict yourself from making the overconfident decision and you end up taking the calculated decision.
iii. Don’t Fear Mistakes
One should understand that everyone makes mistakes and nobody is an expert. People who learn from their mistakes and try to avoid them in the future are more likely to become successful. on the other hand, the ones who ignore their mistakes and refuse to commit them tend to remain mediocre. To reduce the overconfidence bias, you can use one trick, which is spending around 10 minutes in the evening to analyse what you could have avoided or in what areas you can do better. This analysis can prevent you from committing similar mistakes in future.
iv. Try to Be Open-Minded
One should have an open mind that they could make mistakes. If the person has the humility to admit his/her mistakes or weaknesses, they will be able to overcome those weaknesses. On the contrary, if the person believes that he/she can not make mistakes, the person will never be able to improve as his/her weaknesses will always remain the same. Rather than suppressing that you are not good at something always aim to learn a little every day.
v. Pay Attention to Feedback
One should pay attention to the feedback that he/she receives from the others. Also, one should not only focus on the feedback that one receives in the one to one meetings but also on the several feedbacks that one receives in the daily life, which he/she might ignore, for example, your manager tells you that you need to focus on your productivity, your friend tells you that you overestimate a lot and so on. These statements that you unknowingly ignore may help you in identifying the areas where you need improvement, and you become less likely to fall for the overconfidence bias.
vi. Do Some Research
Most people judge new information or events based on their prior knowledge and beliefs. They are so confident about their beliefs that they don’t even bother to question their beliefs even if anyone raises any concern. For example, due to the overconfidence bias, people believe any information as true if it is aligned with their beliefs while they deny to believes the information that is against their beliefs. To avoid this, one should always do some basic research to check the credibility of the information rather than assuming it as true or false based on his/her prior beliefs. Researching about things, avoid you from judging anything from your own perspective and viewing it from a wider perspective. Conducting some research is one of the best techniques that you may use Researching about the possible problems that may occur in the plans before executing any plans can prevent the person from facing huge losses. The person takes the decisions realistically rather than based on personal biases.