Overconfidence - too much of a good thing?

Confidence is an essential ingredient in business success but overdosing is fatal. The latest research on overconfidence shows how to avoid the pitfalls of hubris.

So here's the deal: we love our leaders to be confident. So much so, in fact, that we'll opt for a highly confident leader even when their decisions are shown to be wrong more often than not. Unlike lack of confidence, which is deemed such a problem it fuels an industry of self-help guides, therapy and coaching, the opposite end of the spectrum has received scant attention. But now researchers are beginning to look more closely at the different manifestations of overconfidence in organisations and the strategies that can be used to prevent the problems of hubris at work.

It's a topic that Don Moore, associate professor of organisational behaviour and theory at Carnegie Mellon University's Tepper School of Business, can safely claim as a speciality. He could even state this over-confidently - but of course he doesn't. Authoritative would be a more accurate word for Moore's explanation of the scope of his work, which includes extensive studies on the effects overconfidence has on individual and organisational decisions.

Overconfidence is generally defined in three ways by researchers: overestimation of one's actual performance; over-placement of one's performance relative to others; and over-precision, or excessive confidence in the precision of one's beliefs. "I'm not the first person to study this," says Moore, who is a visiting academic at University of NSW in Sydney. "People have studied it a great deal. Now we are trying to reconcile the different ways overconfidence has been studied."

People think that as a rule they are better than others, he says, and they can to be too sure that they know how they perform - either better or worse.

"Whatever beliefs they hold, people tend to be too sure that these beliefs are the correct ones," Moore says. "The reason probably has to do with the way we access information from memory and the way the brain is set up."

There's certainly plenty of confidence on display in the workplace, he agrees, and there are a number of negative consequences when this goes unchecked. For a start, the ability to really listen to others is often in short supply.

"If everyone thinks they know the way to do things, it makes it difficult to have an interacting of ideas," Moore says. "We are too quick to conclude that others are incompetent or confused or idiots and don't understand what we do, and this hampers effective sharing of ideas.

Information gathering is another victim of over-precision. Says Moore: "If you question managers to see if they access enough information and get enough inputs, there's a lot of evidence that they don't. That's why consultants are hired - to tell the manager what they already know."

It's in the decision-making arena that Moore's findings have particular resonance. "One of the things my research looks at is when you get inconsistencies between different types of overconfidence," he says. "You can get people being too sure of not being good enough, where people think they can't do a job. Or potential entrepreneurs who think they can't try to set up a business. There are missed opportunities. They are too sure they are not good."

What Moore and his fellow researchers have found is that self-interest plays a major role in how many of us view the world and thus make decisions. This egocentric focus particularly affects strategic situations, because people tend to oversimplify and even ignore others. In a negotiation with a tight deadline, for example, Moore has found both parties predict that they will do worse than the other side.

Some studies suggest the overconfidence pattern is self-perpetuating in the workplace. Says Moore: "If a company has 100 people at entry and everyone is too sure of their knowledge, some will go on to succeed and some fail.

Those who happen upon the more successful strategies will therefore gain confidence in their abilities and that will make them surer of themselves, and more confident of their decisions. Some people make this argument and there's certainly evidence of overconfidence in CEOs."

In a way, we are responsible for creating our own nightmares of overconfident leaders because most of us crave strong, decisive figureheads. Again, says Moore, this is borne out by much of the research data.

"There's evidence that people listen to and follow the leader that expresses high levels of confidence in their own advice and orders, even if that person is no more competent [than others] and their leadership is not high quality," he says. "But people have more faith in a leader who expresses more confidence and will follow them, and that's fairly resistant to feedback."

Even when an overconfident leader is shown to make fewer correct decisions than a rival, the overconfident leader will engender more faith and trust among followers than the person who expresses doubts or a desire for more input before making a decision.
How, then, to deal with an overconfident boss or simply someone whose over-precision is making them prone to poor decisions? Moore says it's quite difficult to change such a pattern of behaviour. He has worked with groups of people who are shown that their judgement is too precise, but says "we don't see any pattern in learning, even after feedback".

From that perspective, the evidence suggests overconfidence is resistant to correction. But all is not lost: "There are people who suggest you do get feedback cycles as you move up in your career," adds Moore.

Strategies to deal with the over-precise are all about de-biasing. "A lot of methods that you think would work are utterly ineffective," he says. "The one thing that works fairly well is to consider the options."

It's easiest to imagine how to use this yourself. You look at a problem and think, "this is the solution". Then you ask, "Why might that be so?" And then you think of other possibilities to evaluate possible options, and you ask, "What have I been learning in my review of the data?"

Faced with an implacable dictate from an over-confident boss, it's still worth saying "how about these other pieces of information?" Moore suggests.

Should a manager want to change their ways, the best advice is to appoint a devil's advocate. Says Moore: "This is someone to say 'here is a contrary opinion'. It happens rarely in organisations because it's a particularly dangerous role, and that person doesn't make the manager's life fun.

But good managers do have the foresight to value people who give them good advice."

Meanwhile if you want to keep your own overconfident tendencies in check, you need to start trying to understand where you stack up against the opposition. "People spend too much time looking in the mirror and not enough time looking at the competition," Moore says.

This phenomenon is very clear in athletic competition and shows up in betting activity before a big match. The fans know more about their own team than they do about the rival and become more confident their team will win - they are inappropriately confident about the result. The solution is to actively seek information about the competition instead of obsessing about your own team.

The same rules apply in the workplace, Moore says, and if you are really sure you are great you are inappropriately confident. "If you are upset someone else has got the promotion and you know you are good, then understanding that decision in detail and why it was made will be useful," he says.

Gender, interestingly, does not appear to be a major differentiator in levels of overconfidence. Moore says the topic has been studied but the results are inconsistent, although he says the work of economist Lise Vesterlund has found women are less likely to make the mistake of over-precision. Most of us, it seems, have some level of bias in the way we view the abilities of both ourselves and others.

Published: 13 April 2007