The Paradox of Confidence

One of the psychological paradoxes is that people who are most convinced are often least informed. 

The important question is: Does confidence come from knowing a lot or being skilled? Do knowledge and skill work together in a helpful way, or can they sometimes cause problems? Studies have shown that the human brain can feel very sure even when our understanding is weak or wrong. Being able to notice mistakes and stop repeating them takes real thinking skills. This is one of the most important abilities that managers and individuals need when making decisions. This applies daily in the stock market and in everyday business situations. 

The interesting phenomenon revealed by this paradox is the Dunning-Kruger effect. Here, people with questionable ability in a domain will overestimate their competence, as they are blind to their own weaknesses and mistakes. We can see this happening in politics, social media debates, and workplace decisions - where overconfidence poppup among the least informed. 

Is this behavioural pattern causing lots of damage to individuals, organisations, and society as a whole? In modern times, we see many examples of catastrophic damage resulting from this behavioural pattern to individuals, scientific research projects, space missions, families, and organisations. Two of the most famous in recent times are the loss of the Challenger space shuttle in 1986 and the bankruptcy of Barings Bank in 1995. 

How to avoid it? (1) Cognitive psychologists tell us that we must go slow with making quick conclusions and decisions and actively reflect on what we know versus what we think we know. A reflective attitude toward one's own certainty about decisions will yield fair results. (2) Depending on active feedback and constructive criticism from peers or mentors is another manner in which we do well to keep ourselves secure from the bias created out of self-confidence and from acquired knowledge. (3) Keeping one’s knowledge base wide and contemporary on the subject upon which the decision is being made is vital to avoid misplaced certainty. (4) Checking the source of the credibility of the information we have is essential when decisions are made. When we get information that aligns with our beliefs, it is more likely and quicker to be used in our decision-making process. The human mind has an opaque view of information that is contrary to one's beliefs. This is especially true, for example, when we encounter information on social media. (5) Make doubting a part of our information processing when making a decision. To doubt is normal. Go after a doubt, and come back having cleared it for better reasoning. 

“Calibrating your certainty requires thinking of all the ways that you could be wrong, and that’s hard for finite, fallible agents like us if it means considering everything that we don’t know.” This makes our thinking in stock selections or in any financial or social decision-making all the more challenging.

FINE