Overconfidence in personal decision making
The
people who become decision makers in an organisation have experienced a lot of
previous successful decisions and feats. There is a good reason for why they have
become confident and being confident is a strong survival trait for a manager or a director. It is extremely difficult to point out when an individual or a group
of people crosses the line and becomes overconfident, probably we can only tell it
retrospectively.
And, the really interesting thing is that sometimes decisions that
are rooted in overconfidence can lead to successes: the struggle to overcome
the challenge might open up opportunities for new thinking, people or personal
and organisational skills. Overconfident people have the gift to take an
organisation to new highs, explore beyond its boundaries although can also lead
to serious trouble (i.e.: the case study of Quaker in Certo, Connelly, Tihanyi, 2008).
Another interesting effect of
overconfidence, especially when the decision maker seems highly and overly confident,
is that this behaviour attracts many ambitious people – which again may turn an initially overconfident
decision into a successful one.
No wonder managers and entrepreneurs
are overconfident – people with low confidence will not start a business or
have a significantly lower chance to become managers or decision makers in an
organisation (Certo, Connelly, Tihanyi, 2008).
I find the concept of metaknowledge
very interesting and thought-provoking. We all use it to some extent and actively consider the depth and width of our knowledge and similarly our ignorance of a topic (Russo and Shoemaker, 1992) but being
conscious about it is deliberating for me. I think there is an important link
between metaknowledge and overconfidence: experienced managers understand
metaknowledge, however acknowledging their limitations openly might be outside
their comfort zone either for personal psychological reasons, for professional
considerations or political agendas. They will act overconfident to avoid a
situation they are concerned about.
In one of my previous workplaces as
assistant general manager I had a difficult time dealing with a business unit
manager, who was über-confident – a real loose cannon, who we finally had to
restrain from making decision above a specific business value.
The base for his overconfidence was
both the availability and the confirmation bias. His world view was in some way very simplistic and in the
split second of finding available information supporting one of his ideas, he would make the decision. As an operations person, he had to make a huge amount of
minor decisions and this bias actually made him a super effective person (he
also had a lot of other highly valued qualities both professionally and as an
individual). However, he applied the same mental processes to all the problems he
encountered and I had to team up with other managers and thoroughly prepare for meetings
involving him to make sure we are able to counter his availability bias with
enough alternative scenarios to ponder.
His confirmation bias was an
interesting case study for me in understanding how not to make decisions on complex
business development issues. True, one needs to make bold moves in the development area,
but in a highly saturated and competitive market it is difficult to come up
with something new that will actually work. However, when this manager found one
piece of supporting data or information for his pet idea, he would have started that business on
the spot. This resulted in huge amounts of failed business attempts and
inventories of products the company was hardly associated with rotting away in
the corner of the warehouse.
The solution we came up to handle these
issues was to always have two sessions on any business development idea, so everyone had time to research the case and to allow him to think about alternatives and
contradictory information. Looking back, I think this was our effort to activate System 2 thinking and deploy metaknowledge.
Sources:
S. Trevis Certo, Brian L. Connelly, Laszlo Tihanyi (2008), Managers and their not-so rational decisions. Business Horizons (2008) 51, 113–119.
J. Edward Russo and Paul J. H. Shoemaker (1992), Managing overconfidence. Sloan Management Review, 1992, Winter 1992, Volume 33, Number 2, 7-17.
