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Confidence is Key, Until It’s Not: The Overconfidence Bias at Work

On January 27, 2024

In Uncategorized

The Overconfidence Bias

Illusions of Invincibility 

The workplace is prone to experience a variety of common cognitive biases. One bias, called the overconfidence bias, can exacerbate many other cognitive thinking errors. In a study, 93% of participants claim to be better than the average person in terms of their driving abilities (Svenson, 1981). Considering this improbability, we must question why so many individuals have an inflated sense of confidence in themselves.  

Failure to acknowledge our own limitations and overlook the instances in which our decisions were biased leads us down a path of suboptimal decision-making. Within organizations, this overconfidence in one’s own abilities can cause conflict with co-workers, poor investments, and missed opportunities.  

The Confidence Paradox 

The overconfidence bias is the tendency for an individual to have an inflated sense of their own abilities, physical appearance, intelligence, or knowledge. This inflated opinion of ourselves often leads to sub-optimal decisions or actions as we trust our own intuition instead of looking at the true facts.  

Overconfidence often stems from past successes that can blind individuals to the flaws in their approaches and hinder innovative solutions. For example, you may recall a very popular movie rental chain going bankrupt just six years after its peak (e-careers.com). The organization’s prior success dominating the movie rental realm caused them to downplay the potential for online streaming services and the decision to pass up the opportunity to buy the now current largest movie streaming service. An overconfident decision based on their past success ultimately led to their demise.

Confounding this paradox, is that this inflated confidence can also lead to having an inaccurate assessment of our own vulnerability to bias and errors. Without acknowledging this vulnerability, we are unable to combat other biases and heuristics such as egocentrism and availability bias.  

Between Confidence and Consequence 

Within organizations, the overconfidence bias can significantly impact the quality of decisions made. Decisions based off an inflated sense of confidence can cause one to overestimate their accuracy and underestimate the risks involved with a decision. At all levels of an organization, this bias can lead to suboptimal decisions that negatively impact organizational effectiveness.  

The overconfidence bias can also influence communication within organizations. Co-workers can mistake a confident assertion for competence and offer their support in favor of a poor decision. When leaders are overconfident, they may be less receptive to conflicting opinions or ideas and turn down innovative ideas. Issues with collaboration and team dynamics can also result from the overconfidence bias going unaddressed. When an overly confident team member fails to listen to the alternative choices presented by members of their team, creativity and innovation are stunted.  

Breaking the Illusion and Overcoming Overconfidence 

Mitigating the overconfidence bias involves training and educating employees on this common cognitive error. When employees understand the errors that we as humans are all prone to experience, self-awareness increases, and they are better able to recognize when they are committing this bias. 

Leaders should strive to promote a culture of open communication and encourage new ideas. Setting the example as leaders of learning from mistakes and taking accountability of decisions encourages team members to follow suit. Conducting post-mortems of decisions can help to assess whether the overconfidence bias influenced a decision. This in turn, can help to prevent the same occurrences from happening in the future.  

The Lantern Group specializes in applying behavioral science insights to positively influence behavior change within organizations. We take a unique approach when crafting organizational communications and training by fusing visual design with behavioral science to create messages that resonate with employees. Reach out to us today to find out how we can help your organization!  

Sources:

Ola Svenson, ‘Are We Less Risky and More Skillful than Our Fellow Drivers?’, Acta Psychologica, 47 (1981), 143–48. 

10 businesses that failed due to poor management | e-Careers

The Power of Possession: Understanding the Endowment Effect in the Workplace

On January 3, 2024

In Uncategorized

The Influence of Ownership

If given the option, would you choose an item worth $10 or an item worth $20? The typical response would obviously be to choose the item valued at the higher price point. However, this logical response is not always the norm.

Ownership of an item often changes the value we attribute to it. In a classic experiment, participants were given a mug and then offered to trade the mug for an item of higher retail value (Kahneman et al., 1990). They found 80% of participants would rather maintain possession of the mug than trade for the higher priced item. This is an example of how our emotions can often override our logic.

Getting Attached to the Idea

The endowment effect, or mere ownership effect, is the tendency for individuals to place a higher value on objects once they own them. When we attach positive emotions to material objects, they become more valuable to us than their actual market value. This effect is not limited to material items alone, rather, can apply to ideas, values, or opinions as well.

One example of the endowment effect in the workplace is when individuals show greater investment in projects that they have initiated in some way. Feelings of ownership over a project intensify the emotional connection that an employee has to the project. This in turn increases their commitment, effort, and passion to see the project to the end.    

Unfortunately, this effect can also hinder innovation and progress within organizations. When an individual becomes so attached to their own idea, they may be quick to turn down the ideas of others in favor of their own. Over time, this tunnel vision can negatively impact the organizational culture.

The Value of Ownership

One way to leverage the endowment effect for organizational good is to offer employees equity or stock options. A second option is to focus on psychological ownership. Psychological ownership empowers employees to further the advancement of the organization as they feel more attached and have a sense of control over their work (Buriro et al., 2018). To foster psychological ownership, employees need freedom over their work and a culture in which they feel comfortable voicing their ideas or opinions in the organizational decision-making processes.

One way of fostering psychological ownership is by involving employees in the process of creating their development plans. Another way is through recognition. When employees receive recognition, even for minor accomplishments, they feel a greater sense of value, which increases motivation and commitment to their work.

The Lantern Group has over 25 years of experience working with organizations to address their greatest assets- their people. Reach out to us today to find out more about how we leverage behavioral science insights in our leadership training, work in rewards and recognition, and when crafting communications to motivate and engage.

References:

Buriro, Sobia & Ng, Siew & Jantan, Amer & Ho, Jo & Brohi, Noor. (2018). Psychological Ownership and Employee Engagement.

Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1990). Experimental Tests of the Endowment Effect and the Coase Theorem. Journal of Political Economy, 98(6), 1325–1348. http://www.jstor.org/stable/2937761

Labels – why they “are” and “are not” important

On December 13, 2012

In Leadership, Motivation, Uncategorized

PlutoThe 9th Planet

Growing up in the 1970’s I had a fascination with Pluto.

It was cool.  It was the farthest planet from the sun.  It was the smallest planet.  It’s orbit intersected with Neptune’s and sometimes was closer to the sun and other times further away – but it would be 100’s of years before that happened since it takes over 200 years to orbit the sun.  It was the last planet discovered and it was discovered because they were looking for planet X.  It was cold and icy and mysterious.

I mean it couldn’t get much cooler.

The only downside was that Mickey Mouse’s dog was named after it…

But then, in 2006, the International Astronomical Union (IAU) downgraded Pluto from the 9th planet to a dwarf planet.

Now, the basic make-up of Pluto hadn’t changed.  It’s orbit was still the same.  It’s size the same.  It’s history hadn’t suddenly been altered – but Pluto was no longer a planet.

And now, my son, who was born in 2006, will never know Pluto as the 9th planet.  It will be just one of the many dwarf planets that are in the Kupier belt and not even the biggest one.  He won’t be reading about it in any of the new solar system books.  He will grow up in an 8-planet solar system.  Our knowledge of the solar system changed, and with it, so did Pluto.

But Pluto is still Pluto – only it’s label has changed. 

3 letters

I started my PhD process in 2003.  It took me 8 years to finish.  Over those years, I learned a lot and my experiences grew (mostly in the first few years where I was taking classes and researching my topic and less in those last 5 years when I was trudging through writing my dissertation).  However, the difference in knowledge and skill the day before I earned my diploma and the day after I earned my diploma was zero.

But people looked at me differently – my label had changed. 

I taught the same sessions.  I did the same consulting work.  Yet, I was now viewed as an expert.   I had three letters after my name and that gave me clout and authority.  It actually changed the way that they experienced the information that I shared with them. 

People who didn’t know me prior to my PhD would never know that I was once just one of the many struggling students out there working hard at getting their dissertation done.  To them, I was Dr. Nelson.  Just as my son won’t think of Pluto as a planet, these people will not think of me as anything but having a doctorate.

And that changes how they perceive me.

But I’m still me.  Pluto is still Pluto.  We just have different labels…but those labels change how people view us.  They can change the dynamics that we have with individuals – how much attention we get, how much credence is placed on us, and how they interpret the information that we provide.

And remember, we place a lot of labels on people: president, chairmen, all-stars, diva’s, minister, deviants, heroes, just to name a few.   Those labels impact how we interact with those people – but underneath it all, we need to remember that they are still human beings.

More info on Pluto here: http://en.wikipedia.org/wiki/Pluto

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