Monday, April 27, 2015

Over-confidence Bias

Wikipedia defines "Overconfidence Effect" as:
The overconfidence effect is a well-established bias in which a person's subjective confidence in his or her judgments is reliably greater than the objective accuracy of those judgments, especially when confidence is relatively high.
A related cognitive bias in the behavioral economics literature is "illusory superiority" which wikipedia defines as:
Illusory superiority is a cognitive bias whereby individuals overestimate their own qualities and abilities, relative to others. This is evident in a variety of areas including intelligence, performance on tasks or tests, and the possession of desirable characteristics or personality traits.
For example something like 80% of drivers think they are better drivers than the median.

In a recent EconTalk interview, Phil Rosenzweig, discusses how many of the key findings of behavioral economics are sometimes misinterpreted, and often misapplied.

For example, when people are asked about their ability to draw or paint, a large majority think they are worse than the median.

The interview also touched upon a possible explanation for both these views (above-median driver, and below-median "drawer"), which was interesting, since I personally hold both these views, of course!

For instance, when we drive, we occasionally see road crashes. Since we don't get into accidents all that often, we surmise "I must be better than average".  On the other hand, we see beautiful sketches and paintings in restaurants, museums, and art fairs. These pieces or art become the benchmark, against which we compare our ability. Naturally, we think, "I am not that good".

Rosensweig's key point is something else: the features artificially introduced in a laboratory setting to make a psychology experiment scientifically valid, often dilute its applicability to the real-life phenomenon that motivated the study.

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