Success brings confidence, confidence brings more success to the point where you have
overconfidence and miss calibration and this is where big mistakes and bad decisions are made!
Sounds familiar?
Recently I read an interesting research on this topic done by Nathan L. Meikle, Elizabeth R. Tenney and Don A. Moore and called "Overconfidence at Work: Does Overconfidence Survive the Checks and Balances of Organizational Life?"
In this research the researchers defined three types of overconfidence:overestimation, overprecision and overplacement .
Overestimation -define overconfidence as the overestimation of
one’s ability, performance, chance of success, or level of control.
Overprecision - is excessive precision in one’s beliefs. For example ,many of us believe that they can predict next year’s stock value or next year’s inflation rate within a 90% confidence interval.
In reality however, statistics show that true values typically fall within 90% confidence intervals less than 50% of the time.
Overplacement -is the belief that one is better than others ,it is the “better-than-average” effect.
As the research summarizes :
The three forms of overconfidence are distinct from one another and do not represent a single unitary construct.They manifest themselves in different situations and affect different beliefs, choices, and behaviors. Overestimation is greatest on hard tasks, overplacement is greatest on easy tasks, and overprecision is greatest when people assess how likely it is that they are right, such as when using confidence intervals
Most of us are overconfident about our own ability and most of the people consider themselves above average.. This puts us on a weak spot with high probability to make mistakes due to over confidence and we first have to acknowledge and accept that it may hit us.
When you make a decision , creating project estimation , ask for funding or prepare annual budget you should always keep in mind that most likely your estimation will not be accurate .
Overconfident leaders can make aggressive, risky, and sometimes extremely bad financial decisions.
Napoleon was a brilliant leader who enjoyed many successes on the battlefield. In 1812, Napoleon decided it was a good idea to invade Russia with winter just around the corner. His ‘Grand Armié’ went in 680,000 strong, the largest army ever assembled in the history of warfare at that time. Just five months later, the French army would limp out of Russia having lost nearly 500,000 men.
Hitler had learnt nothing from history and did the same mistake when he began his campaign against Soviet Russia in June of 1941.
In Sept. 15, 2008, at 1:45 AM, Lehman Brothers Holdings Inc. filed a bankruptcy petition in the United States Bankruptcy Court for the Southern District of New York. It was the largest bankruptcy proceeding in U.S. history (Link to article) .
This is another example of overconfidence leaders that relied on complicated financial products just as the real estate market began to decline.
Overconfidence might lead you to think that you don't need to learn and improve. staying in your comfort zone does the same.
Make sure your confidence does not turn into negative overconfidence.
Can Being Overconfident Make You a Better Leader?
There are also numerous instances in which organizations can benefit from
overconfidence of their leaders and their employees .
The positive aspect of overconfident CEOs was highlighted in research published in the Harvard Business Review .
when Apple CEO Steve Jobs approached AT&T about partnering on a new kind of mobile phone — a touchscreen computer that would fit in your pocket — Apple had no expertise in the mobile market. Yet AT&T executives quickly came to believe so strongly in Job’s vision that they skipped internal process protocols to land the deal. Randall Stephenson, then CEO of AT&T, famously said, “I told people you weren’t betting on a device. You were betting on Steve Jobs.” Apple went on to secure massive commitments from AT&T’s suppliers, who spent hundreds of millions to build factories for iPhone-specific parts.
The research suggests that overconfident CEOs are better innovators, they are more likely to develop relationships with key suppliers which tend to last longer than average ,and that firms led by overconfident CEOs are associated with significantly lower employee turnover.
Overconfidence can be liability or asset. Try to calibrate it to a point where you benefit from the advantages and avoid the dangers of being overconfidence.
Success brings confidence, confidence brings more success to the point where you have
overconfidence and miss calibration and this is where big mistakes and bad decisions are made!
Until next time , as always .......
Every Day Is Day One ..
Your venture partner ,
Swell Ventures Academy .
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