There’s been a lot written about cognitive biases in the last decade. If you walk into the Psychology section of Barnes of Noble today or browse Amazon for “decision-making,” you’re sure to see a library of books on how irrational humans can be. In my last post, I spoke of the first of the three - confirmation bias.

What's second on our list?

Over-Confidence

For newbies to the literature on cognitive biases, this one should at least be familiar. We’ve all met over-confident jerks that think planets revolve around them (you might even work for one), or the wishful thinkers with their head in the clouds, but all of us, myself included, have fallen victim to moments and sometimes stretches of over-confidence. If you’re like me, these stretches have usually ended with bitter disappointment, or even catastrophic failure. And yet, despite what we think we have “learned” for next time, we continue to be over-optimistic about our abilities and the state of the future. The same mistakes occur again and again.

In business, over-confidence is rampant. And it’s no surprise to see why. In complex organizations filled with many individuals with diverse ideas and views, you have to speak up to be heard and market your abilities to get noticed. Being humble takes a back seat to arguing without legs to stand on. How many M&As have you heard about that have failed? Quaker buying Snapple, anyone?

One outcome of over-confidence is missed deadlines and delayed projects on account of the planning fallacy. When’s the last time your business finished a project early? Or under budget? And yet we continue to create unrealistic project plans in hopes that the future will somehow be different than the present; this is over-confidence at its best/worst. Another classic example of over-confidence is the illusion of control, the idea that if we can quantify something, we can measure it, understand it, and thus manage it. Many financiers have fallen victim to this illusion for decades. And yet, as the market collapse of 2008 showed, confidence can sometimes only be an illusion.

If over-confidence is not constantly checked, poor business outcomes often result. Thus, businesses and individuals need to install objectivity into their systems to keep them in balance. For projects, teams should look at historical averages for timelines and past budgets to plan future projects. Another option is hiring consultants. There’s an old joke that consultants have made money for decades telling companies the things they already know but don’t want to hear. This is because companies were over-confident but didn’t want to admit it.

Look out for the third bias that befalls many organizations, coming soon.

Patrick Healy

About the Author

Pat is a member of the HBX Course Delivery Team and currently works on the Economics for Managers course for the Credential of Readiness (CORe) program. He is also currently working to design courses in Management and Negotiations for the HBX platform. Pat holds a B.A. in Economics and Government from Dartmouth College. In his free time he enjoys playing tennis and strumming the guitar.