Overconfidence is the tendency for people holding incorrect, overly optimistic views and failing to comprehend the limits of their own actual knowledge and abilities. Research suggests distinguishing three different types of over confidences: over-precision, over-estimation and over-placement.
Overconfidence and negative
consequences
Over-precision is a type of
behaviour where believing that one’s own judgments, predictions and decisions
are more accurate than the reality without question or justification. One of
the underlying causes of over-precision is human nature trying to resolve
internal dissonance in a stressful situation. We could make low quality
decisions or serious mistakes in getting things done because over-precision
discourages us from listening to others, taking advice, or accepting different
ideas and suggestions. Because of over-precision, you could implement the wrong
strategies and never get things done.
Over-estimation refers to a
tendency to believe that one can be better/more capable/perform faster than
true performance or ability, which is based on an absolute personal evaluation
of one’s own performance, not anyone else’s. It is a common tendency as it is a
good feeling to believe in yourself! Because of over-estimation, we may enhance
ourselves too positively instead of accurately, misunderstand the level of
control we have therefore estimate the time and cost incorrectly for getting
things done. Overestimation could throw us into the deep end if we believe we
are capable of handling a risky situation or believe everything is under
control when in reality it is not.
Over-placement is called
better-than-average effect. As the name suggests, it is the term used when
people believe they are better than others, which is an incorrect perception.
Recent studies find evidence of under-placement, meaning people view themselves
worse-than-average, particularly when you have so many things to do and you are
overwhelmed. Both over-placement and under-placement occur due to a disregard
of the accurate point of reference or standard to compare with. People who
over-place themselves are highly unlikely to take advice from others, more
eager to engage with competition and new ventures without consideration of the
risks. People who under-place themselves would often miss a significant
opportunity while they could have succeeded if only, they had the courage to
make decisions and take actions. It seems that both over-placement and
under-placement are so extreme that we could be emotionally and/or financially
damaged either by getting involved with unnecessary competition or missing
opportunities to grow.
Benefits of overconfidence
In contrast, other studies provide
evidence that overconfidence can be beneficial for our success for
over-confidence can actually be advantageous on average, even if costly at
times.” Research suggests that over-confidence is not only useful but essential
to succeed in a competitive environment. Over-confidence is connected with fast
decision making in a dynamic environment thus new initiatives would never start
without some level of over-confidence. In this case, over-confidence works as a
motivator to achieve chosen outcomes regardless of the individual and the
situation. Over-placement provides individuals with higher status and higher
grades by colleagues even if the reason for confidence is unjustified. Those
who believe they are better than others give an impression to other people that
they are competent, capable of engaging with others and possess efficient
interaction skills, all of which display leadership ability of an
over-confident individual. The benefits from over-placement are more
significant than any possible costs. The CEOs with over-precision judge the
failure probability lower than the actual. They are more innovative,
particularly in competitive industries, and they are keen to bring new
technology into organisations, that results in organisational success.
Therefore, positive impacts of overconfident CEOs may balance out the negative
effects.
How to overcome negative
effects
Although overconfidence can be
advantageous, sometimes we should better assess our own beliefs and reality.
When is the time for the reality check? Prior studies show that overconfidence
can amplify results for the situation where one can influence outcomes. In that
case, assessing our own beliefs and reality is recommended when it is
impossible to control events. Taking the third-person perspective and
questioning the expected outcomes to be achieved by others will solve the
negative effects of all types of overconfidences. It fills the gap between
predicted and actual behaviour. Considering a possibility that we might be
wrong and the reason why we could be wrong can help in adjusting our own
judgment about confidence. Since over/under-placement occurs due to the lack of
comparison or point of reference, having full information of the situation is
helpful to avoid the negative effects of this bias. People with over-precision
and over-placement are highly unlikely to take advice or suggestions from
others. Establishing the systems to force us to consider perspectives of others
or hypotheses can make us aware of the differences between our own beliefs and
reality and assist us in avoiding the negative effects of over-precision and
over-placement.
Overconfidence can dupe you into thinking you have control over everything, it can cause you to make costly mistakes and it can make people not like you. However, it can also help you when a major decision has to be made, and the pros and cons weigh the same. You would not have reached where you are today without making fly-by-the-seat-of-your-pants decisions and putting it all on the line.
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