Overconfidence Bias

An Overconfidence Bias is a cognitive bias where a cognitive agent generally overestimates their confidence in an inference.

• AKA: Optimism Bias.
• Context:
  • It can be reduced by … detecting it … thinking more about the decision.
• Example(s):
  • a person claiming to know the trend of oil prices in the coming three years.
  • …
• Counter-Example(s):
  • an Underconfidence Bias.
  • a Sampling Bias.
• See: Confirmation Bias, Subjective Probability.

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References

2017

• (Wikipedia, 2017) ⇒ https://en.wikipedia.org/wiki/overconfidence_effect Retrieved:2017-11-7.
  • The overconfidence effect is a well-established bias in which a person's subjective confidence in his or her judgements is reliably greater than the objective accuracy of those judgements, especially when confidence is relatively high. Overconfidence is one example of a miscalibration of subjective probabilities. Throughout the research literature, overconfidence has been defined in three distinct ways: (1) overestimation of one's actual performance; (2) overplacement of one's performance relative to others; and (3) overprecision in expressing unwarranted certainty in the accuracy of one's beliefs.

    The most common way in which overconfidence has been studied is by asking people how confident they are of specific beliefs they hold or answers they provide. The data show that confidence systematically exceeds accuracy, implying people are more sure that they are correct than they deserve to be. If human confidence had perfect calibration, judgments with 100% confidence would be correct 100% of the time, 90% confidence correct 90% of the time, and so on for the other levels of confidence. By contrast, the key finding is that confidence exceeds accuracy so long as the subject is answering hard questions about an unfamiliar topic. For example, in a spelling task, subjects were correct about 80% of the time, whereas they claimed to be 100% certain. Put another way, the error rate was 20% when subjects expected it to be 0%. In a series where subjects made true-or-false responses to general knowledge statements, they were overconfident at all levels. When they were 100% certain of their answer to a question, they were wrong 20% of the time.

2013

• http://psychologytoday.com/blog/the-art-thinking-clearly/201306/the-overconfidence-effect
  • QUOTE: The overconfidence effect also applies to forecasts, such as stock market performance over a year or your firm’s profits over three years. We systematically overestimate our knowledge and our ability to predict — on a massive scale. The overconfidence effect does not deal with whether single estimates are correct or not. Rather, it measures the difference between what people really know and what they think they know (see The Black Swan, Taleb). What’s surprising is this: Experts suffer even more from the overconfidence effect than laypeople do. If asked to forecast oil prices in five years’ time, an economics professor will be as wide of the mark as a zookeeper will. However, the professor will offer his forecast with certitude.

2012

• http://en.wikipedia.org/wiki/List_of_cognitive_biases
  • Overconfidence effect – excessive confidence in one's own answers to questions. For example, for certain types of questions, answers that people rate as "99% certain" turn out to be wrong 40% of the time.

2011

• (Kahneman, 2011) ⇒ Daniel Kahneman. (2011). “Thinking, Fast and Slow." Macmillan. ISBN:0374533555
  • QUOTE: The impact of overconfidence on corporate strategies, the difficulties of predicting what will make us happy in the future, the profound effect of cognitive biases on everything from playing the stock market to planning our next vacation — each of these can be understood only by knowing how the two systems shape our judgments and decisions. …

    … We are prone to overestimate how much we understand about the world and to underestimate the role of chance in events. Overconfidence is fed by the illusory certainty of hindsight. My views on this topic have been influenced by Nassim Taleb ...

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