Overconfident? So what? Analyzing Overconfidence

What is over-confidence?

Since a lot of people since my childhood have often accused me of over confidence, I thought it is high time to do some research on it.

Is there really something called over-confidence? The dictionary says that it is more confidence than a situation warrants. Well, that’s pretty straight forward.

However, we all have different interpretations and outlooks about every single situation. For a lot of people, the economy is bad – especially the laid off workers may think doomsday is approaching. The entrepreneur who is getting to hire people for less salary wouldn’t think so. Have you heard of recession baby start-ups? Google was one of them.

Anyway – I started with one simple question. Is over-confidence a real thing? Or is it that we call someone over-confident if there outlook of a situation is more positive than ours? In that case, over-confidence simply being relative to someone else’s outlook, over-confidence becomes someone else’s problem rather than my own personality flaw.

The social overconfidence

There’s another way to look at over-confidence. Very often people complain that someone is being over-confident when the person seems to assume or claim a position of superiority that we are not comfortable in conceding to them. Some people are socially confident, which some other people can find threatening or inexplicable. Well, why is he acting so cool – who does he think he is? This is just over-confidence!

Is it just optimism?

As I hang out with more entrepreneurs, I come across more guys who will be easily classified as over-confident by most. What kind of people will quit their jobs, spend their last bit of savings while they work long hours for free, trying to make their idea come real and build a big business with the meagre resources that most start-ups start with? However, while the rest of the world finds the confidence mysterious, the entrepreneur usually knows exactly what he is doing, why he is the right person to do it and why it would work. He does not the whole story and figures out a lot of things along the way, but he knows a lot more than the outsiders. What is over-confidence to a lot of people, is just know how for him.

I didn’t leave the geyser on! type of confidence.

I exclude from the scope of over-confidence mere behaviours which are geared towards compensating lack of evidence. Who left the geyser on in the toilet? I didn’t do it, very sure. 100% sure.

Well, information like this is not always possible to remember correctly, and impossible to verify due to lack of evidence. A lot of people try to overcome such a situation through a show of confidence to support their statement in absence of any evidence they can rely on. The confidence is needed to convince the audience, although it is often baseless. This is not really confidence; this is more like fake confidence being projected to achieve an end. I would like to exclude this from scope of this discussion to keep things simple.

What the NLP teacher told me about over-confidence and belief systems

I learned about a different genre of over-confidence altogether when I came across a great NLP and creativity trainer – he taught me the importance of belief systems in performance and success. Even if it is over-confidence by standards of other people, it helps to hold on to unrealistic levels of confidence and optimism. In fact, he showed me how a lot of extremely successful personalities simply live in an alternative reality – a reality they have tweaked to create high level of confidence, which allows them to target the highest, very ambitious goals. It helps them to work harder at those goals than everyone else thinks is prudent, and helps them to overcome the failures and rejections that come their way much more frequently than others due to their chosen path. I have noticed this trait in many entrepreneurs too.

Over-confidence and social status

A study also shows that “over-confidence” helps people to reach high social status. That’s barely surprising – in a world full of confused people without perspectives but great things to achieve – other people rally behind those who have strong belief systems and lend the belief system to others. There is great risk of this being misused, and in history many over-confident men and women have misused this power. In a world threatened by information overload, we are looking for people with perspective, leaders who can put things in context, those who we can trust more than ever. If they do not show extraordinary confidence in what they say and do, will we really believe them?

Over-confidence in psychology – the Overconfidence Effect

In study of psychology, there is a well established bias – called the overconfidence effect. This says that when confidence is high, people tend to believe that their decisions or judgments are much more accurate than the actual average accuracy.

Read these specific quotes of some psychologists:

"People are overconfident. Psychologists have determined that overconfidence causes people to overestimate their knowledge, underestimate risks, and exaggerate their ability to control events. Does overconfidence occur in investment decision making? Security selection is a difficult task. It is precisely this type of task at which people exhibit the greatest overconfidence." - Nofsinger (2001)

1.     "Overconfidence is greatest when accuracy is near chance levels.

2.     Overconfidence diminishes as accuracy increases from 50 to 80 percent, and once accuracy exceeds 80 percent, people often become underconfident. In other words, the gap between accuracy and confidence is smallest when accuracy is around 80 percent, and it grows larger as accuracy departs from this level.

3.    Discrepancies between accuracy and confidence are not related to a decision maker's intelligence."  - Plous (1993)

Takeaways

So do we live our lives afraid of the over-confidence effect? I have a few action points:

1.   What people do not know they will often write off as over-confidence – no need to pay attention when you are actually engaging in information arbitrage.
2.  Over-confidence can be good and very beneficial. We need strong belief systems to survive the wear and tear of the difficult paths that we choose. We certainly need conviction to lead.
3. Over-confidence can be detrimental to decision making. However, being decisive is important too – and taking a decision in an under-confident manner is worse than being over-confident. How do we factor in and counter-act the overconfidence effect then? Keep safety nets as a matter of practice whenever possible but be fully confident in what you are doing at the moment. Once started on a path, go full throttle. Build in safety mechanism before that, not after you start the work.

It’s easy to say – but I know how many times I have to venture out without those safety gears. I know some of them will pay off, others will go bad. This has been story of my life so far. It is important to survive – we get another shot if we are alive and still optimistic.

Let’s not gamble, but it’s not good to let the opportunities pass by either. How do you tell the difference?

It’s quite a paradox. If you have something to shed light on, please do so in the comments.