Comments on: Experience Increases Overconfidence

By: Roy

Roy — Tue, 06 Jan 2009 12:07:07 +0000

Although higher ability may lead to higher overconfidence, people with higher overconfidence are not necessarily have higher ability because there are factors other than ability that affect level of overconfidence.

By: Unknown

Unknown — Tue, 01 Jul 2008 18:01:06 +0000

After thinking about this for a while, I realized that it’s completely obvious. Everyone is overconfident, and of course as people’s abilities increase, their confidence increases even faster, and so they become even more overconfident. Look at Eliezer: he has a lot more ability than most people, and an immensely higher degree of overconfidence than most people.

By: michael vassar

michael vassar — Tue, 01 Jul 2008 10:46:22 +0000

Pablo: It seems to me that an implicit assumption in most economic thinking is that everyone already implicitly knows the one true economics except we nerds who don’t know anything until we have verbalized it. This is obviously a gross exaggeration of reality, but there is some truth to it.

By: Pablo Stafforini

Pablo Stafforini — Tue, 01 Jul 2008 08:00:58 +0000

If overconfidence is positively correlated with ability, then observers can rationally take overconfidence as a signal of ability, and people can want to appear more overconfident to appear more able.

Robin, why do you assume that people know what you ignored until you read the study? Even if overconfidence is positively correlated with ability, observers can rationally take overconfidence as a signal of ability only if they are aware of this correlation. We should not impute to people beliefs about facts which took experts long time to uncover, unless we have independent evidence that people do know such facts, or can think of a mechanism which credibly explains how such facts are known by people.

By: John

John — Tue, 01 Jul 2008 00:22:18 +0000

Sorry, I was a little confused with this bit:

“If overconfidence is positively correlated with ability, then observers can rationally take overconfidence as a signal of ability, and people can want to appear more overconfident to appear more able.”

Wouldn’t that be just “confidence”? I thought “overconfidence” meant confidence that wasn’t justified.

@Marius: Maybe there is no skill to trading stocks, only luck. If that were the case, then the Dunning-Kruger effect wouldn’t be allowed to operate, because there would be no difficult concepts that only an experienced trader could understand. Just a thought.

By: mobile

mobile — Mon, 30 Jun 2008 21:05:39 +0000

Experince and success increase confidence, and confidence increases overconfidence? Or is that too intuitive?

By: Yvain

Yvain — Mon, 30 Jun 2008 18:46:33 +0000

This reminds me of Nassim Taleb’s “Fooled by Randomness”, where he argues a lot of the stock market industry is based purely on luck, but that naive people, both participants and observers, imagine success or failure was based on the ability of the trader or analyst.

If that’s true, then these results could be an example of survivorship bias. Successful, old, experienced traders and analysts are the ones who have spent many years without going bankrupt or getting fired – the ones who have gotten lucky. They probably attribute their success entirely to their own ability, and are confident in being able to continue having that success. But if their success was really caused by good luck, that confidence will be overconfidence.

By: Michael

Michael — Mon, 30 Jun 2008 18:24:29 +0000

I am under the impression that analogous results are well known in a variety of other contexts. For example, the first time you drive you are very cautious. As you drive a few times without any accidents, you become more confident that you will not get into an accident and so drive more recklessly. Success, or maybe more accurately lack or failure, gives a false impression of the robustness of continued success.

By: Phil Goetz

Phil Goetz — Mon, 30 Jun 2008 15:38:26 +0000

I remember a study of police officers, where they guessed whether suspects they had arrested were guilty or not. Confidence and inaccuracy (presumably measured against convictions) both increased with the number of years of experience.

By: jb

jb — Mon, 30 Jun 2008 15:07:08 +0000

When you’re young, and careful, and successful, that gives you more confidence. The additional confidence stays with you, and as you get a little older, you’re still careful, and successful. The ones who aren’t successful, of course, even if they are careful, leave the field.

So what you’re left with is the successful people who have seen others fail, giving them a sense of importance and power. And we know from a previous blog post that a sense of power leads to less time spent considering issues, overconfidence,etc.

It sounds like the best bet is to find someone who is not yet powerful, but has a track record of success up to this point.