Article/Hao Xuguang, columnist of Sina Financial Opinion Leader Column (WeChat official account kopleader)
Why do individuals form overly positive judgments about their own abilities? Scholars have proposed two explanations: the first one is based on motivation bias. Individuals show self-confidence, which can provide benefits for themselves psychologically. For example, overconfidence can improve people's self-esteem; The second explanation emphasizes that the cognitive process may sometimes produce direct bias.
Overconfidence is one of the most stable psychological characteristics of individual deviation.
If someone says that he knows the correct answer to a question, how wide is the answer he provides actually wrong? Research shows that people often exaggerate their true understanding of things. When people say that it is correct in 70% of cases, it is only about 60%; When people say that it is correct in 90% of cases, it is only about 70%. This phenomenon of overestimating the accuracy of event judgment is called overconfidence. In the process of stock investment, the more profitable it is, the more investors like to buy and sell. Surprisingly, the more losses, they are still willing to repeat the operation. Why? Because they always feel that "I am higher than others, especially my peers".
The concept of overconfidence originated from psychological research in the 1960s. Since the 1970s and 1980s, overconfidence has become a widely concerned research issue in the field of psychology. Today, these studies have been widely applied in finance, investment and management.
In 1965, clinical psychologist Oskamp Oskamp gave the expression of "overconfidence" in his analysis of psychological clinical judgment: overconfidence beyond accuracy. He believes that self-confidence increases with people's assessment of their own tasks. Since then, some scholars have defined overconfidence as a belief that the accuracy of their knowledge is higher than the accuracy in fact, that is, the weight given to their information is greater than the weight in fact. Therefore, in psychological research, overconfidence is generally considered as a calibration error and a typical cognitive bias.
The increase in the amount of information will strengthen overconfidence. With the increase in the amount of information, people's confidence in the accuracy of their judgments has rapidly improved, but their actual judgment accuracy has not improved accordingly. An American scholar once made a study. On some horse racing tracks, eight professional horse racing judges were selected as subjects. Each horse had 100 pieces of information about itself. The eight professional horse racing judges were asked to select several pieces of information at random, and then they were limited to 5, 10, 20, and 40 pieces of information. Then they predicted which horse would win. Finally, with the increase of the number of information about horse racing selected by the referee, the confidence level also increased accordingly. The final result of horse racing showed that the accuracy of judging the final victory of the horse did not increase with the increase of the number of information.
The difficulty of decision-making problems will also strengthen overconfidence. The experiment found that people feel more confident about the more difficult the problem is, while they tend to be less confident about the simpler problems. For example, participants were asked to take a red ball from a jar. The difficulty of the problem is divided into three levels: in the "easy" level, the probability of winning a red ball is 50%; In the "difficult" level, the probability of winning the red ball is 45%; In the "impossible" level, the probability of winning a red ball is 40%. The result is that in the "easy" level, the average accuracy rate of the experimental participants is 85%. In most confidence intervals, the subjects lack confidence; In the "difficult" level, the average accuracy rate of the experimental participants was 61%. In all confidence intervals, the subjects showed overconfidence; In the "impossible" level, they showed extreme overconfidence in all confidence intervals. Scholars believe that the cause of this phenomenon is related to the anchoring effect. When the problem is relatively simple, people usually have an anchored confidence level. As the complexity of the problem increases, people gradually adjust their confidence level, but the extent of adjustment is less than the increase in the difficulty of the problem, so there is a tendency of overconfidence.
Overconfidence is widespread in work and life. Psychologists, doctors, nurses, investment bankers, engineers, entrepreneurs, lawyers, negotiators, managers and other professionals all have overconfident behavior tendencies. When the measurability of events is relatively low, experts are often more likely to show overconfidence than ordinary people. It is a common behavior tendency of the company management to be overly optimistic about the future performance of the company so as to underestimate the risk. Some scholars have proved that managers, as a special group, are more likely to show optimism than ordinary people, and the higher the position of managers, the more obvious the tendency of overconfidence. Through the survey of some American entrepreneurs, it is found that entrepreneurs generally overestimate the possibility of their own entrepreneurial success and underestimate the possibility of their own entrepreneurial failure. At the same time, they firmly believe that their entrepreneurial level is far higher than their competitors. Suppose a manager has two secretaries. A is very good and smart. He does everything very well and never thinks he is wrong. B's quality is average, but he knows what his shortcomings are and often reflects on them. Which do managers prefer? If you choose A, you are more likely to have problems than B, because "you don't think you are wrong". In fact, no one can guarantee that you are right at any time. If the manager believes in this belief, there will often be a very big deviation.
Why do individuals form overly positive judgments about their own abilities? Scholars have proposed two explanations: the first one is based on motivation bias. Individuals show self-confidence, which can provide benefits for themselves psychologically. For example, overconfidence can improve people's self-esteem; The second explanation emphasizes that the cognitive process may sometimes produce direct bias. Generally speaking, people are not able to accurately assess their own abilities, and also lack the ability to understand their own incompetence. Compared with failure, successful experience can make people have self bias such as overconfidence, and further stimulate the desire for success. People attribute success to their own ability and failure to bad luck by anticipating that their actions will succeed. Because of this, when making decisions, people tend to overestimate outstanding and attractive information, especially information consistent with their own beliefs, and tend to collect information that supports their beliefs, while ignoring information that does not support their beliefs. At the same time, they underestimate the information that is highly relevant, concise, but not vivid, and they do not respond adequately to it.
(The author of this article introduces: Professor and doctoral supervisor of School of International Business, University of International Business and Economics.)
