Wednesday, September 30, 2009

Does optimisim lead to over-confidence

Or is it the other way around?

In a post on overconfidence:

What do the following high-profile disasters have in common: World War I, Vietnam, the war in Iraq, the collapse of the banking system, and underpreparedness for natural disasters such as Hurricane Katrina?

According to Dominic Johnson at the University of Edinburgh and his pal James Fowler at the University of California, San Diego, the answer is that they have all been blamed on the all-too-human condition of overconfidence.

The puzzle about overconfidence is its ubiquity. Many studies have shown that most people have an exaggerated sense of their own capabilities, an illusion that they have control over uncontrollable events and are invulnerable to risk. Most people, for example, believe they are above-average drivers, a statistical impossibility. We are all overconfident in one way or another.

It's a little puzzling why over-confidence is so common. Is it more common now than say two decades ago? In the 1990s there was a claim (which is probably still being claimed today) that (young) adults were prone to depression.

A popular self help book during the time was Martin Seligman's "Learned Optimism". In his book, Seligman documents the links between depression and overall well being and how pessimism can lead to debilitating depression and consequently poor health. In his book, he shows how optimism can be learned - the implication being that (in some circumstances), by taking control of events (or feeling that you have control over events) and letting go of others one learns optimism therefore building confidence. (This is basically the gist of the book.)

This all makes some sense but in the test in Chapter 3 of his book the following item (item 45):

You win the lottery.
A. It was pure chance
B. I picked the right numbers

If you selected A as the response to the statement it actually counted against you. (For more, see the book but it has to do with how you explain events to yourself and the type of explanation can affect your confidence and how you view how much control you have over the events.)

If we all started to think that we are good because we are all trying to avoid depression by acting and thinking optimistically then this could explain why over confidence is so common. Curiously, the book seems to claim the opposite - that there are more people who are depressed because they are pessimistic.

The current trend is continuing but under the different name of "Happiness" and "Resilience" and Seligman and University of Pennsylvania seems to have become the center of happiness research. See

Is there a suggestion that self-help in particular, learning optimism, having a positive mental attitude and taking charge of our lives (or at least feeling like we are taking charge) caused the financial crisis? It's just a thought - after all where does over confidence come from?

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