As we know, decision making is an element of our everyday life but, in order to succeed as professionals and individuals, we need to take into consideration various distortions, affecting this process. Consciousness in understanding these distortions and biases will lead to the increase of decision quality (Certo, Connelly & Tihanyi, 2008).

In addition to such biases, as framing, risk aversion/risk seeking behaviour or source dependence, there is such a cognitive bias as overconfidence which represents the tendency to overestimate perceived chances of the success. Here it is important to realise the difference between confidence and overconfidence in decision making. Realistic confidence, as opposed to overconfidence, includes disconfirming as well as confirming evidence and arguments (Russo & Schoemaker, 1992).

When overconfidence is acknowledged, the next step is to have appropriate constructive feedback and accountability used to recalibrate our perception (Russo & Schoemaker, 1992). One of the good examples of giving clear recommendations of how to deal with overconfidence were done with Shell’s geologists when a training to develop calibration skills has been introduced at their workplace, where employees had to provide estimations, which after that were compared with the actual results, followed by the appropriate feedback which did not directly influence their business process (consequently which minimised the stress factor).

The first thing, that became sort of a revelation for me, was that previous success, being an essential part of building up positive self-esteem, leads to overconfidence and, as a consequence of it, to mistakes in decision making (Russo & Schoemaker, 1992). Although realistic self-esteem (and confidence as its part) is an important motivational tool helping to believe in your abilities and is a prerequisite of going beyond your comfort zone, business success requires realism. Here, as I understand, the most important element is flexibility and ability to look at the problem from different angles, which every person needs to take into consideration dealing with a new problem – because behavioural patterns, that proved to be right in one circumstances, might not be appropriate in the other.

So, here the example with confidence vs. overconfidence follows the same logics as realistic self-esteem vs. high self-esteem where credibility is not always related to the way decisions are presented or articulated but based on the real outcomes and quality of decisions, being made (Russo & Schoemaker, 1992; Merkle & Weber, 2011).

The second insight after reading the article was that all the cognitive causes of overconfidence – such, as availability, anchoring, confirmation bias etc. – were focused on limiting the amount of uncertainty of the situation. This process is very similar to the psychological concept of categorization and stereotyping, as a part of that, when people tend to make assumptions based on their perception patterns of knowledge and often being lazy to go into all the depth of the situation (Fisk, 2004).

Among the ways of reducing overconfidence at the workplace are the following:

• Familiarizing employees with the concept of overconfidence in order to create awareness of this problem;
• Providing constructive and ongoing feedback based on the employee’s actual performance;
• Organising weekly staff meetings where team members can share their thoughts about overconfidence and their own strategies to cope with this bias;

References:

• Certo, S. T., Connelly, B. L., & Tihanyi, L. (2008). Managers and their not-so rational decisions. Business Horizons, 51, 113-119.
• Fisk, J. E. (2004). Cognitive Illusions: A Handbook on Fallacies and Biases in Thinking, Judgement and Memory. Hove, UK: Psychology Press. pp. 23–42. 
• Merkle, C., & Weber, M. (2011). True overconfidence: the inability of rational information processing to account to apparent overconfidence. Organisational Behaviour and Human Processes. Elsevier, 116 (2), p.262-271.
• Russo, J. E., & Schoemaker, P. J. (1992). Managing Overconfidence. Sloan Management Review, 33(2).

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