Overconfidence

Confidence is a good thing.

People are more likely to perform at their best when they are confident. They can persuade others. They are seen as leaders. Self-confidence plays an important role in having a happy and fulfilling life.

As we become more competent in our abilities, we gain in confidence. This can induce further competence. Perception of our own competence by others can also rise, and a positive spiral continues.

However, there is a point when too much confidence can have a detrimental impact on our decision-making.

Overconfidence

Overconfidence is when our subjective confidence in our own judgements is reliably greater than the objective accuracy of those judgements.

It is typically categorised in three ways: over-estimation of one's actual performance, over-placement of one's performance versus others, and over-precision in the certainty of the accuracy of one's beliefs.

Overconfidence is a pervasive behavioural bias. Ask a room full of people if they are an above-average driver, and a statistically impossible proportion will say yes.

Overconfidence can hamper decision-making, and make us more prone to mistakes. Overconfident management teams can miss signs that ultimately bring down their businesses. Overconfident traders over-trade and negatively impact their returns.

Caution (or lack of)

Overconfidence can lead to being less than appropriately cautious, stemming from an illusion of knowledge or control.

We must recognise that no matter how confident we are about something, there is still always the possibility that we are wrong. Organisations have risk departments that attempt to minimise the risk of loss, but risk-management is not a concept that we so readily apply in our daily lives.

Implementation idea

Take a look across your life at areas where you have become more confident of late. Ask yourself, am I still applying the same level of caution to my decision-making as when I had less confidence?

A personal example: I am presently close to peak lifts across all major exercises in the gym, and a result am full of confidence and extremely motivated to keep training and pushing the numbers. However, I realise I may be getting too confident; I have reduced rest days below my own weekly target, and am training through small niggles which in the past would have led to an immediate break. Increased confidence has indirectly increased injury risk, and I now have an area to work on - rest.

Confidence is great. Ensure it doesn't lead you to letting your guard down.

Best,

Alex Joshi