Dilbert does behavioural economics: Overconfidence

Dilbert overconfidence.gif

We are now on our third week of Dilbert does behavioural economics and we have to make a confession: it seems Dilbert is the most popular of our posts including nobel laurate quotes, top ranking TED talks and behavioural economics insights. But just because Dilbert has become the holy grail of business insight, does not mean that we cannot easily top that, so we will keep on rocking…

… and that brings us neatly to overconfidence. Overconfidence is the tendency to be overly optimistic, to overestimate one’s own abilities, or to believe their information is more precise than it really is (just like our assertion to beat Dilbert easily). In the above strip, Dilbert’s boss falls victim to this bias when he assumes that all managers (presumably including himself) are better than average, all the while not recognizing Dilbert’s impolite jab at his poor math skills.

This in fact based on real life research, where individuals in a sample of different professional groups were asked whether are in the top 10% of their group. 60% of the engineers felt they were in top 10%, 80% of the architects put themselves among the best 10% and 100% (yes all of them!) of the naval cadets were of course clearly in top 10%. You can thus imagine what happens, when an overconfident management team decides on their targets and strategy – the first are likely to be too high and the second is likely to be unsubstantiated.

We have previously done similar exercises with leaders, where we asked groups of 5 people to work together during a day and at the end of the day estimate individually, what their share of the reward should be (to make it to 100% each would have to require an average of 20% of course) – on average and without exception each class would request an average of 140% of the reward.

This is of course an insight into why classic performance management systems do not work. Even in the unlikely event that you distribute benefits fairly, most disagree with their individual cut. And this is only the beginning of the trouble for performance management and you may have noticed that worlds foremost champion of performance management systems, GE, has recently discontinued their famous Session C following such companies as Microsoft, Adobe, Accenture and Deloitte. Maybe a topic for a later post.

Source: http://dilbert.com/strips/comic/2013-01-18

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