Is Overconfidence Bias All that Bad?

A while back Daniel Kahneman said in an interview that if he would have a Magic Wand he would eliminate overconfidence.

The article further elaborates on what Kahneman means: “Overconfidence: the kind of optimism that leads governments to believe that wars are quickly winnable and capital projects will come in on budget despite statistics predicting exactly the opposite.”

Source: Daniel Kahneman: ‘What would Ieliminate if I had a magic wand? Overconfidence’ 

Probably the best known example of overconfidence is that of newlywed couples who, very close to the time of getting married, unanimously say that their chances of getting divorced are zero. This, despite the statistical fact that around 50% of marriages end in divorce. If I’m not mistaken, even people who get married for the second time exhibit a similar overconfidence bias.

Without challenging the great Kahneman, I wonder if there isn’t a good (evolutionary) reason for why we’re all affected by overconfidence.

It goes without saying that the prediction: the war will be over by Christmas was wrong for both World War I and World War II. Naturally overestimating one chances of success when starting a war is detrimental – one starts a war.

However, there are lots of benign cases of overconfidence bias that have some positive impact, at least at a higher societal level.

Coming back to marriages: if, at the time of the wedding, we wouldn’t be overconfident about our marriages’ chances of success, we might never do it… and this includes those whose marriages last.

Having children is another case of overconfidence and is strongly correlated to marriage. Whether married or not, future parents underestimate the hassles they will face.

Overconfidence among (wannabe) entrepreneurs is widely known. Every entrepreneur believes she or he will bring to the world the next major business, paradigm-shifting tech product etc.

The statistical reality, however, is a lot more down to Earth. Most new businesses fail and the chance of creating the next big business is in the same order of magnitude of winning the lottery.

However, trying to start a new business brings some benefits at both societal and individual level. In order for a new business to benefit its owners it doesn’t have to be the Next Big Thing. In order for it to benefit society, it can be even a small business that works reasonably well.

With the risk of using myself as an example, when I started my first business (after successfully setting-up a student non-profit), I was wondering: How can I fail? and I got more than one answer. My first business endeavor was an utter failure. But after a while, I tried again in a different area of business and after about a year I managed to find a business model that worked (at least for a couple of years).

Without starting that first, doomed to fail business, I would have never started the one that finally worked.   

There’s a Romanian saying that would translate to English as:

You entered the game, now play.

I believe overconfidence has the role of Getting us into the Game; of getting our behinds off the couch and doing something. Even if that initial something doesn’t work, we’re in the game and we have to play, so we are forced to figure out how to manage.

I believe many people get married due to love and, of course, overconfidence. Naturally things don’t go as in the ideal scenario, but this makes us figure out ways in which we can make things work.

Many people start a business that doesn’t go as they dreamed (overconfidence strikes again), but at least some will try to figure out what and how can work. Maybe some entrepreneurs start as (delusional) dreamers who believe that they will bring The Next Big Thing, but end up having a reasonable small business that provides them with an income and pays a few employees.

I believe overconfidence plays a huge role in getting us to begin doing things. Some will end up in failure, but others will get done and will be useful. 

When to Fire a Cannon and When to Use a Precision Knife in Behavioral Design

When designing and testing a behaviorally informed intervention, there are two extreme approaches: (1) Precision Knife Approach and (2) Firing a Cannon.

In the Precision Knife Approach we design a simple intervention that uses only one or two features that vary (independent variables). We subsequently run an experiment (Randomized Control Trial – RCT) to investigate each feature’s effect on the target behavior (Dependent variable).

The Precision Knife Approach is rooted in rigorous academic research. In order to conduct proper (experimental) research, scientists need to investigate the effect on the target behavior (Dependent variable) of each feature that is manipulated (independent variable) and, if more than one, their interaction effect(s).

The advantage of using a Precision Knife Approach is that you get to know how each feature in your intervention works. You know which features used together generate positive interaction effects (i.e. 1+1 > 2) and which features used together generate negative interaction effects (i.e. 1+1 < 2). 

The downside of the Precision Knife Approach is that it faces behavioral designers with a choice between simplistic interventions (i.e. one or two features) that can easily be tested and complex interventions (i.e. 4 and more features) that are incredibly difficult to test.

The difficulty of testing complex interventions (using the Precision Knife Approach) comes from how a correct experimental research design is done. If we have an intervention based on one feature, then we need two experimental conditions (test cells): Control and Intervention. Once we introduce another feature in the intervention the number of test cells doubles. If we introduce a third feature it doubles again (from 4 to 8) and so on.

Having such hyper-complex research designs is impractical for many reasons including costs of designing different variants of the intervention, acquiring a large enough sample to “fill in” all test cells etc.

The other extreme approach is the Firing a Cannon. In a nutshell, this means that when designing the behaviorally informed intervention, you put everything (reasonable) in it and, subsequently, test the entire intervention against a control (do nothing) or / and against the current material used.  

From the point of view of scientific research methodology this is really sloppy. Moreover, it comes with the risk of generating negative interaction effects (1 + 1 < 2).

From a design / practical point of view, the Firing a Cannon Approach is highly useful because behavioral design has the main goal of improving an existing situation through cost-effective and subtle means (interventions). Finding the best – most effective – intervention can be a later goal.

Moreover, the Firing a Cannon Approach requires fewer resources and smaller samples to test the effectiveness of the intervention.

Another reason for which the Firing a Cannon Approach is advantageous is the increased chances of actually getting things done or proving the worth of behavioral design.

Imagine that you go to a (prospective) client or beneficiary with a complex intervention and an extremely complicated RCT design (such as in the Precision Knife Approach). Because most people are scared of complex things, there’s a good chance that the proposition will be rejected.

Imagine that you go to a (prospective) client or beneficiary with a simple intervention using one or two features and the proposition is accepted. You implement the intervention and run the RCT. You find nothing – the intervention doesn’t work. Subsequently you meet with the beneficiary (client) and present the non-results and ask to run another try, this time using different features (tools) in the intervention. Although this is perfectly correct from a methodological perspective, (real) people are not eager to keep investing in things that don’t produce (desired) results.

In the early stages of the behavioral design process (after the research), the Firing a Cannon Approach is superior to the Precision Knife Approach. In the beginning it is important to show that cost-effective behavioral interventions produce results that are equivalent or superior to what is happening at the current stage.

If the project allows for refinement of behavioral interventions, it is possible to use the Precision Knife Approach to fine-tune the materials used.

For more on Behavioral Design take a look at www.naumof.com 

Emotions in Sequence: A Real Life Case

Contempt & disgust >>> solidarity & fear >>> anger >>> hope.

Some of you might know already about the tragedy that happened one week ago in Bucharest – Romania. There was a fire in a nightclub which resulted in 32 deaths and more than 130 people being injured, at least 20 being in life and death situations. I wrote about it here and international media ( BBC, CNN) covered the event.

Prior to this tragedy, the general feeling among (middle class) Romanians was that of contempt and disgust for politicians, government, most public authorities – in general The System.  For those of you who don’t know much about my country of birth, it is a fantastic place that, unfortunately, is plagued by oligarchy, corruption, imposture and nepotism. This is particularly in public administration and government, though, to be fully fair, the private sector is, one way or another, accomplice or at least involved.

However, for many (young) professionals from the middle class, things were tolerable as long as there wasn’t any major disruption in their daily lives.

After the tragedy in the Collective nightclub, where 32 people died burned alive and more than a hundred were injured, the citizens of Bucharest (capital of Romania) realized that, what used to be an acceptable / tolerable level of corruption, was in fact, one of the causes of the tragedy. Fire safety certificates, public business certificates issued with bribes, general negligence etc. were the causes of this tragedy.

After 3 days of mourning during which there was an unseen expression (attitudes and behaviour) of solidarity, Romanians took to the streets. In an unprecedented show of public anger. More than 25.000 citizens of Bucharest (that is more than 1% of the population of the city) asked for the resignation of the mayor of Bucharest’s fourth district (where the nightclub was established), the resignation of the Minister of internal affairs and the resignation of the Prime Minister (which, by default implies the resignation of the whole Government).

The next day, all three resigned. The outcome was 35.000 people on the streets of Bucharest and 70.000 in the entire country demanding profound change in public governance and manifesting against corruption.

The next day, the President of Romania (the last politician with a good level of trust) invited the political parties for consultations in forming a new government. Moreover, he invited the civic society and representatives of the protestors for talks.

After these consultations and talks, there is some feeling of hope.

Setting aside the factual very recent history (talks with the civic society & protestors’ representatives took place on the same day of writing this post), from a psychology point of view, it is fascinating to see the evolution of public emotions and their recipients.

Before the tragedy there was contempt and disgust towards politicians and politicized public authorities. Immediately after the tragedy there was solidarity (altruism) with the victims, their families and technical public servants (i.e. doctors, first respondents, firemen etc.). There, also, was a natural fear of death and fire. Subsequently there was huge anger with the political establishment. Now there is a glimmer of hope.

Contempt and disgust >>> solidarity & fear >>> anger >>> hope.

P.S. Honour to the first responders and medical staff who treated and treats the wounded. A huge Thank You to the citizens and governments of France, Turkey, Belgium, The Netherlands, Israel and Germany (sorry if I missed someone)! These countries and their citizens offered to help with medical services for the care of the wounded.

P.S. 2. Apologies to my fellow Romanians for not being on the streets alongside you.