Daniel Kahneman: The Trouble with Confidence

you know society rewards overconfidence we want our leaders to be overconfident I mean if they told us the truth about the uncertainty we would discard them in favor of other leaders who who sort of give an impression that they know what they're doing we want overconfidence we support it we sustain it and there is an awful lot of it I mean most of what we read in the paper is overconfidence sometimes it's catastrophic just about every war that you see I think that's a general rule there are optimists among the generals and there are optimists on both sides and and that is true for a lot of litigation as well so a lot of conflict is fed by overconfidence there is an interesting story here of two biases that work in opposite directions so one familiar you can call it bias but is what we call loss of those people put a lot more weight on negative events than on positive events on lawson's than on gains so that's one principle that you know if if people are to gamble many on the toss of a coin and and they stand to lose $100 they will demand more than $200 to accept the gamble which is in some ways ridiculously risk-averse so people are loss of moves on the other hand they're optimistic and so many of the decisions that people make especially installing new businesses I mean that is where it's been studied most extensively people think they will succeed they open a restaurant because they think they will succeed but in fact less than 1/3 of small businesses survive for five years so clearly overconfidence is rife and overconfidence and loss aversion seem to be acting in opposite directions you have to distinguish the perspective of the individual from the perspective of society I think for society it is probably very good that we have a lot of optimistic entrepreneurs and you know who think they will succeed although most of them fail and most of them really do not know the odds it is not true that they know the odds and they take the risks willingly but many of them most of them probably do not know the odds from the point of view of the individuals it is not always good to be optimistic for example I have no interest whatsoever in my financial advisor being an optimist you know I don't care for that for an entrepreneur it may be a good thing to be an optimist because it will make him or her persevere more we know that being an optimist is useful under some conditions it is not always useful in making decisions

Channel: Big Think

Views: 235,135

Keywords: bigthink, Jonathan Fowker, Elizabeh Rodd, Big Think, BigThink, BigThink.com, Daniel Kahneman, confidence, Nobel Laureate, psychologist, leaders, newspaper, war, loss aversion, gambling, optimistic, business, entrepreneur, decision making

Id: tyDQFmA1SpU

Length: 2min 57sec (177 seconds)

Published: Sat Feb 11 2012