B.E. For Dogs: Overconfidence

Published on Oct 12 2017 by Matt Trower, Catherine J. Berman, Jamie Foehl | BE For Dogs

B.E. for Dogs is a bi-weekly comic series that will examine concepts in behavioral economics from the perspective of our canine companions. Look out for new comics every other week!

The series is created by Matt Trower, Catherine Berman, and Jamie Foehl.

Overconfidence | Behavioral economics | Center for advanced hindsight

Overconfidence: Overconfidence refers to the tendency to believe that you are always right and above average. A rational person (or canine) would determine what they know and what they don’t know and accurately evaluate their own skill level relative to other people. But most people have a hard time recognizing when they don’t know something, and they tend to believe they’re above average. An example of overconfidence is that many Americans think they are above average drivers (1). Statistically speaking, this is impossible.

Studies show that people feel confident about their decisions because they neglect or forget what they don’t know and can’t know. For example, research (2) showed that forecasts by CFOs of large corporations are rarely accurate, but CFOs will continue to feel strongly that their predictions will be right.

References

1. Svenson, O. (1981). “Are we all less risky and more skillful than our fellow drivers?” Acta Psychologica, 47, 143–148.

2. Ben-David, I., Graham, J. R., & Harvey, C. R. (2011). Managerial Miscalibration. Working Paper.

More B.E. For Dogs:

#1 Friction

#2 Relativity

#3 The What-The-Hell! Effect

#4 Decision Paralysis

#5 Herding

#6 Relativity Pt. 2

#7 Decoy Effect