Are you overconfident?

These days, when I walk into a classroom, I have tremendous confidence — probably too much. It’s bred from experience, as I’ve been teaching at Wharton since 2009 and have cumulatively lectured to thousands of students. But sometimes, unfortunately, my confidence has led me to under-prepare for a presentation, and I’ve been caught flat-footed when pressed on a topic outside my area of expertise. As an assistant professor, though, I had the opposite problem. I spent so much time prepping my slides, memorizing student names and anticipating questions that my delivery of material was often stiff. Strangely, I’ve spent the bulk of my teaching career miscalibrated — at first I was under-confident in my abilities, and now I’m over-confident. Why can’t I just get it right?

The interview I’m sharing today is with a scientist who has devoted his career to understanding the biases of confidence that can explain my miscalibration as well as errors you’ve likely made (or witnessed).

But before we go there, and before I share my monthly recommendations, check out the photos below (or this video) of my wildest experience of 2023: I was turned into a hologram that visited Singapore earlier this month! #ThisIsTheFuture

This Month’s Recommended Listens

• The Power of Do-overs: We’re back with a new season of Choiceology, and in our most recent episode I interview my Wharton colleague Marissa Sharif about her research on why setting tough goals with built-in slack produces great outcomes.

• What Works to Promote Diversity: Wharton has launched a new podcast to share faculty insights called The Ripple Effect. In a recent mini-series on Women and Work, I shared key takeaways from research I’ve done on diversity training, gender and corporate boards, and restructuring hiring decisions to promote DEI.

• The Upside of Stress: Check out this terrific episode of A Slight Change of Plans to hear the brilliant Modupe Akinola of Columbia University share her insights about how you can reframe unavoidable stress to your advantage.

Q&A: Errors of Confidence

In this Q&A from Choiceology, UC Berkeley Haas School Professor Don Moore describes several common errors we make when it comes to calibrating confidence in our abilities and knowledge and gives his advice on how to do better.

Me: Could you define over-precision? I think it’s a really interesting type of over-confidence.

Don: Over-precision is when you're too sure about the accuracy of your knowledge. I see this showing up on my to-do list when I commit to something in the future and I'm sure I'll have plenty of time. And then by the time the future arrives, I'm just as busy as I was when I thought I would have more time in this hypothetical future. So I wind up over committing to things and inevitably disappoint some of the people I've made commitments to.

Me: That hits a little too close to home for me. Could you share some of the research on over-precision?

Don: Over-precision is an incredibly robust phenomenon. It happens in all sorts of domains and has been demonstrated in several consequential field settings. There's a fairly high-profile paper in economics documenting the tendency for chief financial officers to be too sure that they know what the economic future holds. And I have a study with doctoral students where we examined data from a quarterly survey of professional forecasters conducted by the Federal Reserve Bank of Philadelphia asking chief economists at companies all around the U.S. what they think is going to happen to the economy. These forecasts figure into monetary policy and the evidence suggests strongly that these forecasts are over-precise. These forecasters—these smart, capable chief economists—act as if they're more sure of how the economy is going to grow or what unemployment is going to be like or what inflation is going to be like than they actually deserve to be.

Me: I love that work! Let’s pivot to another really interesting kind of overconfidence that’s called over-placement. Could you describe over-placement?

Don: So over-placement is all about beliefs about your placement relative to others. Are you better or worse than others? And it is quite distinct from over-precision.

The most celebrated finding in this literature is Ola Svenson's 1981 finding that 93% of American drivers think they're better than the median. That can't be true. Interestingly, that effect even holds among drivers who are in the hospital because of an automobile accident.

One important area where this bias matters is for entrepreneurial entry. In industries where a lot of people think, “yeah, I can do that,”—think restaurants, liquor stores, hobby shops, clothing, retail—there is ruthlessly difficult competition, low profitability, and high rates of failure.

Me: Right, so over-placement — or an overestimation of your relative ability — means too many people enter.

Don: Right. On the other hand, in industries where fewer people think they have what it takes, you see less intense competition and higher profitability by-and-large.

The big reason is task difficulty. If it's a task most people feel competent doing, they think they have what it takes and will typically report that they're better than average. 

Me: Could you say more about that?

Don: Sure. For instance, I asked my MBA students to give themselves a percentile rank on their juggling ability relative to all the other students in the class. I'll get them telling me they're really sure they're in the bottom 10th percentile. In truth, they’re all terrible at juggling so the average student will be average, but they feel incapable at this difficult task.

They report that they're worse than average and are too sure of that mistaken impression. This is, by the way, an instance of the imposter syndrome, where capable people who are struggling with a difficult task all think that they don't have what it takes. So many of us encounter this self-doubt when we are thrown into some new challenging tasks, a new job, or a difficult assignment where we wonder whether we're the right person for the job and whether someone else might be better at it. When in fact it's a challenging task that's tough for everyone.

Me: It's so interesting to hear about when we’re overconfident versus underconfident in our abilities. I know over-placement is a big issue and many might argue it’s one of the most pernicious biases. In fact, I've heard Nobel Laureate Danny Kahneman say if there were one bias he could get rid of, this would be the one. Why is over-placement so sticky and harmful?
 
Don: Yeah, over-placement is more dangerous than under-placement. Both are errors, but over-placement leads us to enter competitions that we will lose, take risks that won't pay off well, and make asses of ourselves by stepping out and taking public stances or showing off in ways that other people don’t appreciate as much as we think they will.

Under-placement on the other hand, leads us to shrink back to avoid competition, to stay out, not to put ourselves forward. And the loss there is a missed opportunity. Whereas the errors we make due to over-placement are errors of commission where we wind up investing, taking risks, taking stances, or entering competitions that won't work out well.

Me: So those errors caused by overconfidence can be costlier and more humiliating.

Don: Yes, indeed. And a natural question is what to do about it. Asking yourself why you might be wrong is one of the most useful and general strategies identified in the social psychology and decision-making literatures. So, if you think you know how you will perform at something, consider the alternative.

If you're experiencing imposter syndrome — if you've taken some new job or some new assignment and you're struggling with it and wonder if other people are better suited for this job than you are, well consider talking to those other people or consider talking to people higher in the organization who've made it past the challenges you are facing. Did they also experience those feelings of inadequacy at the beginning? Getting that information can help put your challenges in perspective.

Me: Being aware of these issues, how do you live your life differently?

Don: I routinely ask myself why I might be wrong and consider alternative points of view. When those alternative points of view come from other people, I take them as seriously as I can and try to learn from the information they have that I lack. So, the criticism that comes my way from blunt-spoken colleagues or from teenage children — I listen to it for information that suggests I’m making a mistake or I could be doing better. That information is precious.

Me: Don, thank you so much for taking the time to talk today.

This interview has been edited for clarity and length.

To learn more about research on overconfidence and underconfidence, listen to the episode of Choiceology where we dig into the topic or pick up a copy of Don Moore’s excellent book, Perfectly Confident: How to Calibrate Your Decisions Wisely.

That’s all for this month’s newsletter. See you in April!

Katy Milkman, PhD

Professor at Wharton, Host of Choiceology, an original podcast from Charles Schwab, and Bestselling Author of How to Change