The Planning Fallacy and The Over-confidence Effect

Our brain is a tricky place to be because it is just full of biases. In my previous posts, I have written about some biases such as the confirmation bias, halo effect, outcome bias, and affective forecasting. Understanding these biases can help us recognize them in our daily lives and we may, in turn, provide ourselves an opportunity to tune our behavior and perspective. In this post, let us understand some popular biases regarding planning and confidence.

The Planning Fallacy

The planning fallacy is a tendency for people and organizations to underestimate how long they will need to complete a task, even when they have experience of similar tasks that over-ran in the past. It occurs either because people overestimate their rate of work or underestimate how long it will take them to get things done. It is strongest for long and complicated tasks, and disappears or reverses for simple tasks that are quick to complete. The term was first proposed in a 1979 paper by Daniel Kahneman and Amos Tversky. The bias only affects predictions about one’s own tasks, whereas when uninvolved observers predict task completion times, they show a pessimistic bias, overestimating the time taken.

So, the reality exists somewhere between one’s own prediction and the uninvolved observer’s prediction.

Understanding Confidence and Self-confidence

Confidence is generally described as a state of being certain either that a hypothesis or a prediction is correct or that a chosen course of action is the best or the most effective. On the other hand, Self-confidence is having confidence in oneself and Arrogance  is having unmerited confidence—believing something or someone is capable or correct when they are not.

Self-confidence does not necessarily imply ‘self-belief’ or a belief in one’s ability to succeed. For instance, one may be inept at a particular sport or activity, but remain ‘confident’ in one’s demeanor, simply because one does not place a great deal of emphasis on the outcome of the activity. When one does not dwell on negative consequences one can be more ‘self-confident’ because one is worrying far less about failure or the disapproval of others following potential failure. One is then more likely to focus on the actual situation which means that enjoyment and success in that situation is also more probable. Belief in one’s abilities to perform an activity comes through successful experience and may add to, or consolidate, a general sense of self-confidence. Studies have also found a link between high levels of confidence and wages. Seemingly, those who self-report they were confident earlier in schooling, earned better wages and were promoted more quickly over the life course.

The Overconfidence Effect

The overconfidence effect is a well-established bias in which someone’s subjective confidence in their judgments is reliably greater than their objective accuracy, especially when confidence is relatively high. This bias is more prominent in difficult tasks. People tend to over-estimate themselves in difficult tasks, because the difference between your judgement and your actual performance increases during difficult tasks. This phenomena is also called the hard-easy effect. Daniel Kahneman says “overconfidence has been called the most “pervasive and potentially catastrophic” of all the cognitive biases to which human beings fall victim. It has been blamed for lawsuits, strikes, wars, and stock market bubbles and crashes.”

But, overconfidence can be beneficial to an individual’s self-esteem too as it gives the individual the will to succeed in their desired goal. Just believing in oneself may give one the will to take one’s endeavours further than those who do not.

Thank you.

The contents of this article are heavily borrowed from Wikipedia.

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