Overconfidence: Difference between revisions
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There is an observed tendency for people to have "excessive confidence in their own judgements. Lichtenstein, Fischoff and Philips (1977) asked subjects to answer simple factual questions (e.g. "Is Quito the capital of Ecuador?") and then asked to give the probability that their answer was right." (Shiller 1997, 12) Even when terms such as "probability" and "odds" were clearly explained to the subjects, "subjects tended to overestimate the probability that they were correct... Moreover, in cases where the subjects said they were certain they were certain they were right, they were in fact right only about 80% of the time." (Shiller 1997, 13) | There is an observed tendency for people to have "excessive confidence in their own judgements. Lichtenstein, Fischoff and Philips (1977) asked subjects to answer simple factual questions (e.g. "Is Quito the capital of Ecuador?") and then asked to give the probability that their answer was right." (Shiller 1997, 12) Even when terms such as "probability" and "odds" were clearly explained to the subjects, "subjects tended to overestimate the probability that they were correct... Moreover, in cases where the subjects said they were certain they were certain they were right, they were in fact right only about 80% of the time." (Shiller 1997, 13) | ||
The Representativeness Heuristic | The Representativeness Heuristic, which is linked to overconfidence, is "a tendency for people to try to categorize events as typical or representative of such a categorization, and then, in making probability estimates, to overstress the importance of such a categorization, disregarding evidence about the underlying probabilities." (Shiller 1997, 13) People may thus think they see patterns in truly random data and confidently feel that "a series which is in fact a random walk is not a random walk" (Shiller 1997, 13) and make their decisions based on misconceptions. | ||
Latest revision as of 18:03, 9 May 2006
There is an observed tendency for people to have "excessive confidence in their own judgements. Lichtenstein, Fischoff and Philips (1977) asked subjects to answer simple factual questions (e.g. "Is Quito the capital of Ecuador?") and then asked to give the probability that their answer was right." (Shiller 1997, 12) Even when terms such as "probability" and "odds" were clearly explained to the subjects, "subjects tended to overestimate the probability that they were correct... Moreover, in cases where the subjects said they were certain they were certain they were right, they were in fact right only about 80% of the time." (Shiller 1997, 13)
The Representativeness Heuristic, which is linked to overconfidence, is "a tendency for people to try to categorize events as typical or representative of such a categorization, and then, in making probability estimates, to overstress the importance of such a categorization, disregarding evidence about the underlying probabilities." (Shiller 1997, 13) People may thus think they see patterns in truly random data and confidently feel that "a series which is in fact a random walk is not a random walk" (Shiller 1997, 13) and make their decisions based on misconceptions.
