Too Much Information - Exploring the Overconfidence Bias
We overestimate the value of additional information in decision-making.
While having the necessary information to make informed decisions is essential, more information will increase confidence but not accuracy. This is because when we have too much information, we tend to focus on irrelevant details and overlook the most critical factors. Additionally, when data is missing, we tend to overestimate its value[LifeHacker]. The result is that when we overestimate the importance of additional information, we become more confident in our ability to make a decision accurately. As we will explore, confidence and accuracy are not correlated, as seen in the [Dunning-Kruger effect](https://en.wikipedia.org/wiki/Dunning–Kruger_effect#:~:text=The Dunning–Kruger effect is a cognitive bias whereby,high performers%3A their tendency to underestimate their skills.).
Stuart Oskamp's study
Stuart Oskamp studied how people process and use additional information when making decisions and how this information can influence their attitudes and behaviors. Oskamp conducted a study on leading psychologists with one of his cases, the case of James Kidd. He investigated whether psychologists' confidence in their clinical decisions is justified. Oskamp provided more information about Kidd to the psychologists and found that their confidence in the correctness of their diagnoses increased significantly. However, their assurance about their own conclusions became completely out of proportion to the soundness of those decisions. This study highlights the importance of providing some but not all information to help experts make decisions. The potential for overconfidence in decision-making arises when additional information is provided. [Source].
Giving people more information did not increase their accuracy, but it did increase their confidence
Oskamp's work led me to look into this bias. Overconfidence is the cognitive bias that describes the tendency for people to overestimate their knowledge or ability in a specific area. This can lead to several problems, including making sub-optimal decisions, taking unnecessary risks, and failing to learn from mistakes.
Overconfidence bias can also be seen in the workplace, where employees may overestimate their ability to complete tasks or meet deadlines. This can lead to them taking on too much work, which can result in stress and burnout. We experience this all the time with change efforts, the tendency of the team to underestimate the time and effort for users to change behaviors fully.
We live in a more data world.
The business focus on analytics coming from data storage, data streams, data lakes, and data oceans seems the answer to every question is more data! Every day in my work, we connect and leverage more data. I spend a lot of time understanding how each client makes decisions and trying to map their decision velocities. In some meetings, we talk about n=all, meaning that with our advanced computing power, we don't need to sample. We can process all the data, improving our insights and, by extension, improving our decisions. Given all the information that we have at our disposal, the challenge now is the right amount of information to make the decisions that need to be made to keep things moving.
Learning from Amazon
According to an article in Business Insider, Jeff Bezos made decisions at Amazon based on five key principles: customer obsession, ownership, long-term thinking, willingness to be misunderstood, and high-velocity decision-making[BusinessInsider]. In his book Working Backwards, Colin Bryar says, "most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you're probably being slow. Plus, either way, you need to be good at quickly recognizing and correcting bad decisions. If you're good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure."
Related Biase: Lake Wobegon Effect
It is the tendency to overestimate one's abilities. This is more likely to show up when we compare ourselves to others, which social psychologists say is a natural way to gauge our process and skills.****
In finance, James Montier surveyed 300 professional fund managers, asking if they believe themselves above average in their ability. Some 74% of fund managers responded in the affirmative. 74% believed that they were above average at investing. And of the remaining 26%, most thought they were average. In short, virtually no one thought they were below average. [CorporateFinanceInstitute]
For those old enough to listen to Garrison Keiller's radio show, Prairie Home Companion, the show's setting was a fictional city called Lake Wobegon. Garrison Keiller, the host of the show, would say that Lake Wobegon was a place where "all women are strong, all men are good-looking, and all children are above-average."
The challenge for me is how to know, with all the information available, how do I ensure that I have provided clients with enough information to be able to make a decision but not so much information that it triggers overconfidence bias. I love the messiness of my career.
