Task 5: Contemporary technology responses - Personal Decision Making tools

Confidence is very crucial in leadership, but overconfidence is suicidal. People overestimate how much control they have and the speed with which they can get work done. They tend to be overconfident in judging their levels of success. Some also believe themselves to be better than others, which can undermine good character e.g. a driver believing he/she is a better driver than other drivers. That is overconfidence.  It causes people to overestimate their knowledge, underestimate risks, and exaggerate their ability to control events. Tony Robbins (an American life coach and motivational speaker) argues that most people overestimate what they can achieve in a year and underestimate what they can achieve in a decade.

The following example to demonstrates overconfidence trap as explained by Ken Blanchard -

Competence starts low and as long as you stick on the task, it grows over time. On the other hard, commitment follows four stages:-

First, when you begin a task, overconfidence is at work, and the commitment is high. This is the Enthusiastic stage.

Once Reality kicks in, and you realize that the task is not easy after all your commitment drops sharply. This is the disillusioned learner, and here is the trap. You are at risk of almost giving up and thinking of trying something else.

But as long as you gain sufficient momentum, you will get through stage two and rich success in stages three and four. The trick here is being aware of overconfidence effect and how it can trap you in stage two.

Interesting things about overconfidence

Knowledge and overconfidence

Having accurate knowledge is essential for making good decisions as it affects information search, information processing and decision making. However, knowledge is the main influencing factor of overconfidence as described below using the three types of knowledge.

• Experience knowledge: - Individuals with high level of experience overestimate the relevance of their past experience in transferring it to completely different situations. 

• Objective knowledge:-  People who are objectively unskilled significantly overestimate their own performance as better than average, although their actual performance is worse than average. Also, objectively competent people underestimate their own performance in comparison to the peer group rating their performance as below average, although their actual performance is above average. 

• Subjective knowledge:- This is the people's self assessment of their own knowledge. People suffer from illusion of control where they have excessive confidence in their control over outcomes of chance-driven tasks e.g. lottery. If people expect certain outcomes and these outcomes do occur, the participants are prone to assign the outcome to their skill rather than luck. 

Meta-knowledge and overconfidence

Meta-knowledge is an appreciation of what we know and what we do not know, the shape and limits of our primary or current knowledge. It helps in knowing what and when to do something. Better meta-knowledge is positively associated with high levels of performance as we can sensibly ask for more or better information. People need to assess their capabilities to appreciate what they can and can not do. Whether you know a lot or a little about a subject, you are still responsible for knowing how much you don't know. 

People display overconfidence in their knowledge, by overestimating how much they know and can do. To size up and factor in uncertainty into our judgments is crucial to successful decision making. People with meta-knowledge should be able predict uncertainty within reasonable ranges depending on the issues and risks involved. 

Effects of over-confidence

Overconfident executives are more likely to commit financial fraud because they make unrealistic promises and fraud seems the only way to deliver those promises.

Overconfident people mostly do not want to involve or consult others in the decision making.

Overconfident managers tend to generate optimistic performance estimates and therefore make risky decisions. 

Overconfident decision makers tend to be less concessionary in the decisions they make. They have a greater challenge in revisiting their prior decision when the competitive environment changes. 

Overconfident people tend not to recognize inaccurate perception of risk during the decision making process and thus the need to be irrational and to attain more knowledge prior to decision making. 

When we are overconfident, we do not try to improve our understanding. We do not check the facts and try to learn more.

How to reduce the effect of overconfidence in decision making

Switch perspective, keep looking back and be happy to see what you have already achieved, and when you rich the trap look forward and be happy to see how little it is needed to complete the task. 

Set better deadlines for your goals. People tend to spend more time in setting the goals than they spend setting deadlines for them, thus the goal maybe realistic but the time is too short to achieve them. 

Resist the urge to believe that your information and perception is better than others. 

References:

http://forum.johnson.cornell.edu/faculty/russo/Managing%20Overconfidence.pdf

http://people.tamu.edu/~ltihanyi/MandecBH.pdf

http://worldleadersconference.com/blog/leadership-overconfidence-its-like-walking-off-the-cliff/

http://aisel.aisnet.org/cgi/viewcontent.cgi?article=1255&context=icis2011

http://scholarworks.gsu.edu/cgi/viewcontent.cgi?article=1023&context=bus_admin_diss

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Makali Nyirongo