Overconfidence Pays

It seems that a realistic assessment of one’s own abilities can be a disadvantage in situations where the returns are high

It is a phenomenon we have all encountered. Successful people in our own area of interest, or for that matter in most fields, tend to have an exaggerated sense of their own abilities. Not only that, these otherwise smart people seem to completely overlook their own limitations even though these are obvious to most others around them. Of course, what most of us tend not to register is that this applies as much to us as anyone else. Self-delusion is a quality all of us share. Given our experience of correctives in the form of reality checks, it seems counterintuitive that this overconfidence should persist, but a recent paper in Nature explains that intuition may fall short where such traits are concerned.

According to the authors, from University of Edinburgh and University of California, San Diego: ‘Confidence is an essential ingredient of success in a wide range of domains, ranging from job performance and mental health, to sports, business and combat. Some authors have suggested that not just confidence but overconfidence is advantageous because it serves to increase ambition, morale, resolve, persistence or the credibility of bluffing, generating a self-fulfilling prophecy in which exaggerated confidence actually increases the probability of success. However, overconfidence also leads to faulty assessments, unrealistic expectations and hazardous decisions, so it remains a puzzle how such a false belief could evolve or remain stable in a population of competing strategies that include accurate, unbiased beliefs…We present an evolutionary model showing that, counterintuitively, overconfidence maximizes individual fitness, and populations tend to become overconfident, as long as benefits from contested resources are sufficiently large compared with the cost of competition… The fact that overconfident populations are evolutionarily stable in a wide range of environments may help to explain why overconfidence remains prevalent today, even if it contributes to hubris, market bubbles, financial collapses, policy failures, disasters and costly wars.’

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Hartosh Singh Bal