Overconfidence effect

The overconfidence effect is the well-documented fact that someone’s subjective confidence in their own judgment is systematically and reliably greater than the objective accuracy of the judgment, especially when confidence is relatively high, and yet another example of how subjects fail to correctly calibrate their subjective probabilities.

The effect
When asked how confident people are in the accuracy of their beliefs or answers to particular questions, data shows that confidence consistently exceeds accuracy; that is, people are more confident that they are right than they should reasonably be. For instance, if subjective assessments were really correlated with reality, then subjects who claimed to be “100% confident” in their answers should be right 100% of the time; if they were “80% confident” they should be right 80% of the time, and so on. Yet this is of course not how things work, in particular when subjects are answering harder questions about unfamiliar questions. In an experiment by Adams & Adams, subjects were given a spelling task and asked to assess their confidence in their answers. When claiming that they were “100% certain” the test subjects would be right 80% of the time. In a different experiment, subjects were made to answer a series true-or-false responses to general knowledge statements, and were overconfident at all levels; a confidence of “100% certainty” corresponded to an accuracy of 80%. The overconfidence effect is pervasive, and persists even when subjects have been made explicitly aware of the bias and how it works.

A related effect is the planning fallacy, the tendency for subjects to overestimate their own rate of work and how long it will take to get things done when the tasks are big or complicated.

Overplacement
Overplacement is the common and often irrational belief that one is better than others.

Illusory superiority
The most famous result showing that people tend to think of themselves as better-than-average is the finding that 93% of American drivers rate themselves as better than the median. The effect is mainly observed in easy tasks in which success is common or relatively easily achievable, and reverses in more difficult tasks.

The Lake Wobegon effect
Perhaps related to the Illusory superiority bias, school systems systematically tend to claim that their students perform better than national averages. The effect has become known as the “Lake Wobegon” effect after Garrison Keillor’s mythical Minnesota town where “all the women are strong, all the men are good-looking, and all the children are above average.”

Implications
Overconfident professionals sincerely believe they have expertise, act as experts and look like experts. You will have to struggle to remind yourself that they may be in the grip of an illusion.

The overconfidence effect has been blamed for lawsuits, strikes, wars, and stock market bubbles and crashes. One could, for instance, imagine how pervasive beliefs that one is more fair and righteous than legal opponents could help explain the persistence of legal disputes. On a larger scale, a nation’s belief in the power and efficiency of their military forces could help explain a willingness to go to war.

The effect has also been described as a necessary condition for explaining why there is so much trading in the stock market. Assuming that the parties involved are perfect Bayesians one would predict that there would be little if any incentive to trade (given that no one would sell if they were to earn more later, and no one would buy if the price were not to go up); the fact two that parties having different information fail to properly calibrate their confidence in the information, and systematically judge their own information to be more reliable than it is, has been proposed as a solution.

Studies of the overconfidence effect suggest that information that is not particularly useful to the subject at hand increases individuals’ confidence in their views. Exposure to false information and the associated confidence this provides to the people exposed might partially explain the widespread skepticism of popular scientific views, and why people are so confident in their false beliefs (cf. trolling).

Related fallacies and biases

 * Base rate fallacy
 * Dunning-Kruger effect
 * Illusion of control
 * Lake Wobegon effect
 * Planning fallacy