Rarely since the publication of Candide have optimism and overconfidence been so fiercely condemned—the Great Recession confirmed that this is not the best of all possible markets. But goddamn, we’ve got a short memory. We’re handing the keys to the financial monster trucks back to those caught DUI when we should be deflating the tires. Yes, the Dow is hovering around the 11,000 mark, and yes, we want investors to be optimistic and confident in recovery, but overconfidence needs restraining.
Most traders and bankers are overconfident about their abilities, while 94 percent of college professors believe themselves to be above-average teachers. Psychological research suggests that overconfidence leads to illusions of optimism, superiority, and control, making it the biggest factor in poor decision-making.
Away from the trading floor, overconfidence has done everything from weaken climate change science to lead N.F.L. teams to make the wrong call every year in the draft. Let’s call a time-out and survey the cocksure.
British police thought a comedian at a recent anti-arms trade protest had an overconfident attitude, worrying them that he could be carrying a concealed weapon. A police officer explained: “If we only stopped and searched people who looked nervous and shifty and didn’t stop the ones who looked overconfident you would be able to get one past us.” Search everyone and be done with it.
The G20 are wary of overconfidence following the announcement of better than expected recovery figures. But it’s their analogy that’s really sold to me the importance of intervention to help Greece. Italian Economy Minister Giulio Tremonti explained:
If the house of your neighbor is on fire, even if it is a small house and, maybe, it is your neighbor’s fault, you’d better not ignore the fire. You’d better use a fire extinguisher, if you have it, and we have it. Otherwise the fire will reach your house as well, even if it is a beautiful and big house.
He doesn’t continue the analogy so I will. We need smoke alarms in every room in the house. But no fire department—everyone knows that’s a socialist institution that threatens our liberty and freedom.
In all matters of overconfidence thinking twice can avert disaster, or at the very least prevent a few painful injuries.Elisha Cooper notes that many men don’t let anyone pass them on a run; competitive instincts kick in when overconfidence could be proven wrong.
I feel a similarly overconfident competitive instinct: With more training, a smart diet, much less alcohol, and many early mornings, I’d never be passed. You see, I can take anyone—I just choose not to. When you’re overconfident, you don’t even need to prove yourself; your incredible sense of self-belief makes proving yourself unnecessary.
Having a top draft pick in the N.F.L. is overvalued to an such extent that the authors of a recent paper on market efficiency consider it to be a Loser’s Curse. Overconfidence is to blame: overconfident people have their confidence about their judgments reinforced by too much information, as happens in the draft where learning every scrap of information and statistic about a player is considered.
The authors conclude that “decision-makers often know less than they think they know.” That’s something worth knowing.
Our civilization has weathered plagues, hundred-year wars, world wars, nuclear proliferation, and weapons of mass destruction. We weathered an economic meltdown and will weather the next crisis. Some, however, aren’t so confident, so they curated a manual to help reboot civilization should Armageddon destroy culture, language, and expert knowledge.
Better print off a few copies of the Rosetta Stone 2.0 right now. And bury them under a hill carved into the shape of a human brain. Though I appreciate the effort of these long-thinkers, I’m glad a greater number of unsung heroes aren’t planning for Civilization II but dedicating their lives to fixing institutions today, tweaking them for extra mileage and better performance.
Psychological research has found that “someone highly overconfident on one task may be highly underconfident on others.” So whilst I race down a hill on a bike at 47 miles per hour (my personal best), I’m not necessarily overconfident in general.
You see, to set a personal land-speed record on a bike, overconfidence is important and can be constructive more widely, producing “greater incentive, greater perseverance, resolute performance, and consequently higher achievements,” explained authors from an Israeli university. In the case of speeding down a hill, once you reach a certain speed there’s no safe escape route possible except to ride it out—touching the brakes could kill your concentration. You must commit and not get the shakes or worry when the moment is at its most dangerous.
But then there are things that moderate overconfidence a few steps back toward caution, making you rethink before descending. Things like pictures of people who have crashed their bikes. Feeling asphalt burn one’s face is much more memorable than an air-bag kiss on the cheek.
Scientists should have confidence in their work if they’ve got the evidence—then they’ve earned the right to confidence. But they can be terrible at getting their conclusion across.
Scrutiny of climate change deniers can be helpful in this regard. Paul Rogers argues that deniers temper confidence, and have the strange effect of forcing scientists to make their work more accessible. That’s a shot of optimism for every time you hear someone shout that the sun, cosmic rays, or a grand conspiracy is to blame. And when that doesn’t work, this handy myth-busting guide can help you overcome any insanity when you get lost.
Evgeny Morozov doesn’t believe the internet has been a force for good, concluding that “Two decades in, the Internet has neither brought down dictators nor eliminated borders.” So the internet has not proved to be the liberating tool and freedom diffuser many predicted—was it ever sold with such guarantees?
I believe overconfidence in the medium’s power is warranted, and that it’s premature to deny it’s positive impact since it didn’t reach so high, so quickly as some utopian expectations. But Morozov’s headline is absolutely right: “Think Again.” In all matters of overconfidence thinking twice—or more—can avert utter disaster, or at the very least prevent a few painful injuries. We’ve had a lot of great thoughts over the years—thinking twice could double our profit! We’ll be rich!