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, Adams, P. A., & Adams, J. K. (1960). “Confidence in the recognition and reproduction of words difficult to spell.” The American Journal of Psychology, 73(4), pp. 544-552. 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, Lichtenstein, S.; Fischoff, B.; & Phillips, L.D. (1982). “Calibration of probabilities: The state of the art to 1980”. In Kahneman, D.; Slovic, P.; & Tversky, A.: Judgment under uncertainty: Heuristics and biases. Cambridge University Press. pp. 306-334. 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,Dunning D; Griffin DW; Milojkovic JD; & Ross L. (1990), The overconfidence effect in social prediction, J Pers Soc Psychol, 58(4), pp. 568-81. 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. Buehler, R.; Griffin, D.; & Ross, M. (1994). “Exploring the ‘planning fallacy’: Why people underestimate their task completion times”. Journal of Personality and Social Psychology, 67(3), pp. 366-381.
==Overplacement==
Overplacement is the common and often irrational belief that one is better than others.For a review, see Alicke, M. D., & Govorun, O. (2005). “The better-than-average effect”. In M. D. Alicke, D. Dunning & J. Krueger (Eds.), The self in social judgment, pp. 85-106. New York: Psychology Press.
===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. Svenson, O. (1981). “Are we less risky and more skillful than our fellow drivers?” Acta Psychologica, 47, pp. 143-151. 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 Cannell, J. J. (1989). “How public educators cheat on standardized achievement tests: The ‘Lake Wobegon’ report”. Originally noted in Cannell, J.J. (1987): “Nationally Normed Elementary Achievement Testing in America's Public Schools: How All 50 States Are above the National Average.” Educational Measurement: Issues and Practice, vol.7 no. 2, pp. 5-9.. 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==
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.Daniel, K. D.; Hirshleifer, D. A., & Sabrahmanyam, A. (1998). “Investor psychology and security market under- and overreactions”. Journal of Finance, 53(6), pp. 1839-1885.
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
==See also==
*List of cognitive biases
==References==
Category:Cognitive biases