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).
