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I thought that what was happening to us was remarkable. The statistical evidence of our failure should have shaken our confidence in our judgments of particular candidates, but it did not. It should also have caused us to moderate our predictions, but it did not. We knew as a general fact that our predictions were little better than random guesses, but we continued to feel and act as if each particular prediction was valid. I was reminded of visual illusions, which remain compelling even when you know that what you see is false. I was so struck by the analogy that I coined a term for our experience: the illusion of validity.
I had discovered my first cognitive fallacy.
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We often interact with professionals who exercise their judgment with evident confidence, sometimes priding themselves on the power of their intuition. In a world rife with illusions of validity and skill, can we trust them? How do we distinguish the justified confidence of experts from the sincere overconfidence of professionals who do not know they are out of their depth? We can believe an expert who admits uncertainty but cannot take expressions of high confidence at face value. As I first learned on the obstacle field, people come up with coherent stories and confident predictions even when they know little or nothing. Overconfidence arises because people are often blind to their own blindness.
True intuitive expertise is learned from prolonged experience with good feedback on mistakes.
People feel they understand complex phenomena with far greater precision, coherence, and depth than they really do; they are subject to an illusion—an illusion of explanatory depth. The illusion is far stronger for explanatory knowledge than many other kinds of knowledge, such as that for facts, procedures or narratives. The illusion for explanatory knowledge is most robust where the environment supports real-time explanations with visible mechanisms. We demonstrate the illusion of depth with explanatory knowledge in Studies 1–6. Then we show differences in overconfidence about knowledge across different knowledge domains in Studies 7–10. Finally, we explore the mechanisms behind the initial confidence and behind overconfidence in Studies 11 and 12, and discuss the implications of our findings for the roles of intuitive theories in concepts and cognition.
"Is it possible to talk ourselves into recession? To what extent do our moods affect economic behaviour? These are of course reasonable questions. But listen to this piece on the Today programme. What do notice?
The thing is, the discussion is entirely about consumer behaviour. A moment’s thought, however, tells us that confidence - and especially irrational moods - are more likely to affect corporate spending:"
"It is not the loss of the reactors that will shake Japan the most but the loss of the certainty that the reactors were their path to some degree of safety, along with the added burden on the economy. The question is how the political system will respond. In dealing with the Persian Gulf, will Japan continue to follow the American lead or will it decide to take a greater degree of control and follow its own path? The likelihood is that a shaken self-confidence will make Japan more cautious and even more vulnerable. But it is interesting to look at Japanese history and realize that sometimes, and not always predictably, Japan takes insecurity as a goad to self-assertion."
"This experiment tests effects of passive, neutral reporting of contradictory factual claims on audiences. Exposure to such reporting is found to affect a new self-efficacy construct developed in this study called epistemic political efficacy (EPE), which taps confidence in one's own ability to determine truth in politics. Measurement of EPE is found to be reliable and valid, and effects of neutral reporting on it are found to be conditional on prior interest in the issues under dispute. Implications of this effect and of EPE are discussed. Self-efficacy theory (Bandura, 1982) suggests these short-term effects may accumulate over time. EPE may affect outcomes related to political understanding, opinion formation, and information seeking."
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From the start, the more confident advisers found more buyers for their advice, and this caused the advisers to give answers that were more and more precise as the game progressed. This escalation in precision disappeared when guessers simply had to choose whether or not to buy the advice of a single adviser. In the later rounds, guessers tended to avoid advisers who had been wrong previously, but this effect was more than outweighed by the bias towards confidence.
The findings add weight to the idea that if offering expert opinion is your stock-in-trade, it pays to appear confident. Describing his work at an Association for Psychological Science meeting in San Francisco last month, Moore said that following the advice of the most confident person often makes sense, as there is evidence that precision and expertise do tend to go hand in hand. For example, people give a narrower range of answers when asked about subjects with which they are more familiar (Organizational Behavior and Human Decision Processes, vol 107, p 179).
One of the odd things about confidence games is that, structurally speaking, there are so few of them—only about as many as there are simple machines. What looks like their near-infinite multiplicity is just a lot of variations on a small number of forms.
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A couple of days ago I finally put my finger on something I’ve been sensing but not grasping—you know, one of those itchy back-of-the-brain apprehensions that there’s a pattern here, only you can’t quite see what it is. Somehow it’s felt like literary analysis. The question is, why do these scams—inheritance cons, MLMs, tax dodges, Make Money Fast, hot stock tip swindles, et cetera—take the forms they do?
What did it was looking at my list of basic scams and observing that what they have in common is the promise of lucrative, risk-free investments. Lord knows the things exist, I thought, but nobody ever gives them away. In theory, high rates of return are the investor’s payoff for taking on higher-risk investments. Achieving that happy state of all payoff and no risk is the main reason the wealthy and powerful manipulate the system.
Oh.
These scams take the forms they do because they’re parodies—no, a better way to put it: they’re cargo-cult effigies—of the deals the ruling class cut for themselves. If you’re an insider, if you have the secret, you can have a job where you make heaps of money for very little work. You can avoid paying your taxes. You can inherit a pile of money because an ancestor of yours left a moderate fortune that’s been appreciating ever since. You can be your own boss. You can have other people working for you, who have other people working for them, who all pay you a percentage of the take.
Just how far should positive news about the economy go to counteract our lack of 'confidence'.
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But the deeper problem here, of course, is that talking up the necessity of happy talk seems to lend support to the idea that the press should be censored for the economy’s sake. Wilkinson: “If the thoughts and feelings of the population are the issue, then maybe the real problem is that the mass media are unduly scaring people. Wouldn’t it follow, then, that good economic policy would have at least as much to do with controlling the media as controlling the money supply? If the problem with handing Maria Bartiromo a script of state-mandated talking points is that it wouldn’t work, how do we know that? It would be pretty interesting if it turned out that manipulating the money supply is what an efficient state turns to when it can’t more directly manipulate ‘animal spirits’ through propaganda.”
For the last month, I have been gripped by the gnawing sensation that all of the conventional wisdom about our current economic crisis is wrong. I think we are facing a crisis of capitalism, not just a periodic bout of market failure.
in list: Economic Crisis
Despite the dry title, what is noteworthy is that Buiter discusses in some detail how corruption, both in the government and society, limits policy choices. Put simply, diseased leadership has trouble pulling a country out of a debt crisis because no one trusts that they will do the right thing (and frankly, why should they?).
in list: Economic Crisis
Don’t bother trying to persuade your boss of a new idea while he’s feeling the power of his position – new research suggests he’s not listening to you. “Powerful people have confidence in what they are thinking. Whether their thoughts are positive or negative toward an idea, that position is going to be hard to change,” said Richard Petty, co-author of the study and professor of psychology at Ohio State University.
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