Happy New Year! What better way to start the year than with a New Year resolution, that you will fail within January and already have a solid explanation for before February hits…😊 Yes, you have just met Overconfidence bias without the safety of your Dilbert tour guide, and you lived to tell the tale!
Overconfidence is well known for luring you into all sorts of adventures, where you have limited experience, knowledge, or ability. While Availability bias lights up information you have readily available and Confirmation bias lights up information you are looking for, then Overconfidence lights up your chosen path, so it seems easy, even if it is new to you. In fact, the less you know, the better you think you are at it!
Overconfidence is the tendency to be overly optimistic about yourself – to overestimate your competencies towards any task, overrate your ability to beat competitors and not least overly believe in the precision of your knowledge. Some close bias family members are wishful thinking, illusions of control and positive self-conception. In a study of different professional groups individuals were asked whether they were 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%…
In our own work we have asked groups of 5 leaders to work together on an exercise and at the end of the day estimate individually, what their percentage share of a reward should be. To reach 100%, then each of the 5 leaders would have to request an average of 20%, but without exception each class would request an average of 140% of the reward. So, when your overconfident management team decides on your target and strategy, then the first is likely to be too high by about 40% and the second unsubstantiated. For example, Sony never lost faith in their proprietary Betamax technology, even as the open VHS standard was quickly outpacing them.
The good news is that this is one of the least dangerous animals on this safari through uncharted decision-making territory – not because it is less deadly, but because the tricks to tame it are not that difficult to learn. Firstly, unlike the other biases it does not spring into action in a spectacular way that allows you to recognize it but expect it to be always present in your colleagues (not you of course – you are surely different from the rest of humanity). Secondly, it is often easier to affect through for example the use of worst-case scenarios or seeking broad disconfirming evidence.
Overconfidence is here for reason though. It helps you accept rejections in sales like situations, keep fighting in rough times and generally protect your self-worth. For CEOs in creative and R&D heavy industries it helps fight against risk aversion and invest in high risk/high reward projects. Just remember it also makes you think that you can walk on water and turn anything into gold – hence the poor investment returns on acquisitions of the past. So, in major uncertainty areas create detailed models including worst case scenarios and in the smaller look for contracting data or at the very least assign a Devils Advocate to pressure test your next investment.
The three first animals of Availability, Confirmation and Overconfidence bias kills close to half of all strategies, so gear up with the shared tools now. There are two more animals to meet and this time you got lucky with your New Year resolution by surviving one of them without your guide. It is not recommended to venture out on your own, so if you cannot wait, then contact me now at firstname.lastname@example.org or +45-23103206.