Overconfidence: Definition, Causes, and Effects on Decision Making and Leadership

This presentation discusses the definition, causes, and effects of overconfidence on decision making and leadership. It explores the difference between confidence and overconfidence, the disadvantages of overconfidence, and how it affects the workplace. The presentation also provides tips on how to control overconfidence and prevent its devastating consequences. References are included.

N A M E O F T H E S T U D E N T
OVER-CONFIDENCE

What is overconfidence?
Can be defined as the
physiological state of an
individual who is too
confident about a certain
activity
Leads to misjudgment of
the ability or opinion of
the individual (Ahmed &
Duellman, 2013)
Is one of the major
reasons behind
physiological biases in
human beings

Difference between confidence and overconfidence
Overconfidence
•makes an individual
assume that ONLY he is
good at a particular task
• imposes negative impact
on an individual’s life
• does not acknowledges
that a certain phenomenon
or activity may posses
negative consequences
Confidence
•Trust that one is good at a
particular task
• Impose s positive impact
on an individual's life
• A person with confidence
also acknowledges that a
certain phenomenon or
activity may posses negative
consequences

Difference between confidence and overconfidence

Case Overview
Mr. X was told by the surgeon that The
operation prescribed to Mr. X has 50 percent
chance of affecting his mental state
She also stated her own developed surgery
posses only 40 percent chance of the same
(Hribar & Yang, 2016)
The exact percentage of psychological
instability stated by the doctor made Mr. X
wonder how can the surgeon predict the
efficiency of her own method so confidently?

How can overconfidence has affected the
estimation of the surgeon?
over-confidence in her own way of surgery
has made her predict that her method of
treatment is better than the prescribed
surgery
overconfidence in her surgery had made her
consider the surgeries suggested by other
surgeons inferior to her (Deshmukh et al.,
2013)
overconfidence is also imposing negative
impact on her professionalism

What Causes overconfidence?
Lack of
confidence
from within in
one self
Believe that
intelligence is
fixed
Lack of self
satisfaction

What cause Overconfidence?
The major causes behind
overconfidence includes
overestimation, over
precision and over
placement
the tendency to overrate
one's standing on a
measurement of decision or
performance
excessive confidence that
one knows the truth
Judging and comparing ones
own performance with others
(Ren & Croson, 2013)

What causes overconfidence?
Due to the illusion of control and planning
fallacy
tendency of an individual to act that he
posses control over a situation despite the
fact he don’t
planning fallacy is referred to the tendency
of an individual to misjudge their rate of
work compared to time (Hirsch, Seubert &
Sohn, 2015)
the better-than-average effect that is
estimating oneself better in performance
than others is a major reason behind over

Disadvantage of of Overconfidence
the measure of the difference between what
an individual know and what they think is
known by them
makes an individual rate the competence too
high and this in turn makes him plunge into
situation that are beyond his control (Ferretti
et al., 2016)
gives rise to unreasonable thoughts that can
impose adverse affect on their own personal s
well as professional life.

Disadvantage of Overconfidence
Lack of
development in
personal skills
Lack of tolerance
of opinion
Overconfidence, if
gets broken, may
lead to depression
(Mishra & Metilda,
2015)

How overconfidence affects
workplace?
Sub-standard
production
Accidents
Conflicts
Low Morale

Why overconfidence is called the mother of bias?
Overconfidence leads to
devastating consequences.
the sinking of the titanic
can be considered as a
great example of
overconfidence in history
(Erceg & Galić, 2014).
according to 93 percent of
the American driver, they
are better than the
median which is
impossible statistically

How overconfidence can affect Decision making?
Over confidence leads
to overestimating ones
accuracy as well as
depth of knowledge
about a specific
situation.
Ignoring as well as not
seeking disconfirming
information
Gaining over assurance
from the past success

Danger of overconfidence in leaders
Overconfident leaders
are more likely to
dismiss conflicting
opinions, even from
trust-worthy sources
Overconfident leaders
more likely to diminish
negative indicators.
Overconfident leaders
more likely to take
intense risks.

Danger of overconfidence in leaders
Overconfident leaders
frequently suppose that
past success will mean
future success.
Overconfident leaders
are in fact good at
leading people to make
the wrong decision (Yang
et al., 2014).
Overconfident leaders
rarely see themselves as
overconfident.

Why overconfidence is called the mother of bias?
Modesty about mental vulnerability can
prevent overconfidence
Majority of overconfident individual posses
an extreme faith in themselves as well as
their decision
The reason behind overconfidence includes
accessibility, representativeness, anchoring,
framing, reference-dependence as well as
egocentrism.

How to control overconfidence?
Being honest to one self
Preventing comparison
of one self to others
Testing oneself
cautiously (Ren &
Croson, 2013)
Listening an assessing
constructive criticism
specially from
trustworthy individual
Treating commitment
seriously

How to control overconfidence?
Investing justified amount
of time to analyze
previous failures or
incidents when success
was not achieved.
Keeping fantasies
separate from realities
Opting for more playful
activities
Going through literatures
written by successful
people

Conclusion
it is highly crucial for every
individual to stay away
from overconfidence.
Overconfidence posses
devastating consequences
In order to deal with
overconfidence and
eradicate the same the
mentioned surgeon should
undergo the above
discussed
recommendations to
eradicate overconfidence.

Reference list

Ahmed, A. S., & Duellman, S. (2013). Managerial overconfidence and accounting conservatism. Journal of
Accounting Research, 51(1), 1-30.
Deshmukh, S., Goel, A. M., & Howe, K. M. (2013). CEO overconfidence and dividend policy. Journal of
Financial Intermediation, 22(3), 440-463.
Erceg, N., & Galić, Z. (2014). Overconfidence bias and conjunction fallacy in predicting outcomes of
football matches. Journal of economic psychology, 42, 52-62.
Ferretti, V., Guney, S., Montibeller, G., & von Winterfeldt, D. (2016). Testing best practices to reduce the
overconfidence bias in multi-criteria decision analysis. In System Sciences (HICSS), 2016 49th Hawaii
International Conference on (pp. 1547-1555). IEEE.
Ferris, S. P., Jayaraman, N., & Sabherwal, S. (2013). CEO overconfidence and international merger and
acquisition activity. Journal of Financial and Quantitative Analysis, 48(1), 137-164.
Hirsch, B., Seubert, A., & Sohn, M. (2015). Visualisation of data in management accounting reports: How
supplementary graphs improve every-day management judgments. Journal of Applied Accounting
Research, 16(2), 221-239.Burks, S.V., Carpenter, J.P., Goette, L. and Rustichini, A., 2013. Overconfidence
and social signalling. Review of Economic Studies, 80(3), pp.949-983.
Hribar, P., & Yang, H. (2016). CEO overconfidence and management forecasting. Contemporary
Accounting Research, 33(1), 204-227.
Mishra, K. C., & Metilda, M. J. (2015). A study on the impact of investment experience, gender, and level
of education on overconfidence and self-attribution bias. IIMB Management Review, 27(4), 228-239.
Ren, Y., & Croson, R. (2013). Overconfidence in newsvendor orders: An experimental study. Management
Science, 59(11), 2502-2517.
Yang, J. X., Park, T., Wickens, C. D., & Helander, M. G. (2014). Effects of information access cost,
confidence judgment and overconfidence bias on information retrieval strategy and task performance.
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