Farnam Street helps you make better decisions, innovate, and avoid stupidity.

With over 350,000 monthly readers and more than 88,000 subscribers to our popular weekly digest, we've become an online intellectual hub.

The Evolution of Overconfidence

Humans exhibit many psychological biases, but one of the most consistent, powerful, and widespread is overconfidence.

Most people show a bias towards: (1) exaggerated personal qualities and capabilities; (2) an illusion of control over events; and (3) invulnerability to risk (three phenomena collectively known as “positive illusions”). Overconfidence amounts to an “error” of judgment or decision-making, because it leads to overestimating one’s capabilities, and/or underestimating an opponent, the difficulty of a task, or possible risks. It is therefore no surprise that overconfidence has been blamed throughout history for high-profile disasters such as World War I, the Vietnam war, the war in Iraq, the 2008 financial crisis, and the ill preparedness for environmental phenomena like Hurricane Katrina and climate change.

If overconfidence is both a widespread feature of human psychology and causes costly mistakes, we are faced with an evolutionary puzzle as to why humans should have evolved or maintained such an apparently damaging bias? 

Counter-intuitively, overconfidence maximizes individual fitness. 

Abstract:

Confidence is an essential ingredient of success in a wide range of domains ranging from job performance and mental health, to sports, business, and combat. Some authors have suggested that not just confidence but overconfidence-believing you are better than you are in reality-is advantageous because it serves to increase ambition, morale, resolve, persistence, or the credibility of bluffing, generating a self-fulfilling prophecy in which exaggerated confidence actually increases the probability of success. However, overconfidence also leads to faulty assessments, unrealistic expectations, and hazardous decisions, so it remains a puzzle how such a false belief could evolve or remain stable in a population of competing strategies that include accurate, unbiased beliefs. Here, we present an evolutionary model showing that, counter-intuitively, overconfidence maximizes individual fitness and populations will tend to become overconfident, as long as benefits from contested resources are sufficiently large compared to the cost of competition. In contrast, “rational” unbiased strategies are only stable under limited conditions. The fact that overconfident populations are evolutionarily stable in a wide range of environments may help to explain why overconfidence remains prevalent today, even if it contributes to hubris, market bubbles, financial collapses, policy failures, disasters, and costly wars.

Full PDF

If you like to learn the best of what others have to offer subscribe to Farnam Street via twitteremail, or RSS.