From Technology Review.
The puzzle about overconfidence is its ubiquity. Many studies have shown that most people have an exaggerated sense of their own capabilities, an illusion of control over events and an invulnerability to risk. Most people, for example, believe they are above average drivers, a statistical impossibility. We are all overconfident in one way or another.
But how can such a condition have evolved when the consequences of overconfidence can lead to the destruction of communities and the catastrophic loss of life?
That’s a mystery that many experimental psychologists have wrestled with but now Johnson and Fowler say they have the answer. By creating a mathematical model of the way overconfident individuals compete against ordinary individuals, they show that there is a clear advantage in overconfidence.
In fact, if the potential reward is at least twice as great as the cost of competing, then overconfidence is the best strategy. In fact, overconfidence is actually advantageous on average, because it boosts ambition, resolve, morale and persistence. In other words, overconfidence is the best way to maximise benefits over costs when risks are uncertain.
That’s an interesting insight. Experimental psychologists have long known of the role of overconfidence in conflict situations and yet have been unable to explain its origin.
But it is Johnson and Fowler’s predictions that are most worrying. Their model implies that optimal overconfidence increases with the magnitude of uncertainty. So the greater the risk, the more overconfident individuals should become.
Thanks to Tyler’s Assorted Links.