# Avoid the Overconfidence Trap

21.12.2016

Episode #4 of the course Psychological tools and traps in negotiation by George Siedel

Welcome to the fourth lesson of the course. The key message in this lesson: you should avoid overconfidence when making negotiation and other decisions.

As noted by Bazerman and Moore, overconfidence, like anchoring, is the result of our use of heuristics. Essentially, we are overconfident that our decisions are correct. Try the following test to determine whether you are overconfident. For each of the following, write down a range so that you are 90% confident that your answer is correct. Do not look at the answers that follow and do not look for answers online. To succeed you should answer 9 of the 10 questions correctly. Why not 100%? This would be too easy because you could select extremely broad ranges for each item.

1. Year in which Wolfgang Amadeus Mozart was born
_____   _____

2. Length of the Nile River
_____   _____

3. Number of times lightning strikes the earth per minute
_____   _____

4. Time it takes sunlight to reach the earth (in seconds)
_____   _____

5. Diameter of the moon
_____   _____

6. Number of knives, forks, and spoons in the White House
_____   _____

7. Number of actively spoken languages in the world
_____   _____

8. Gestation period (in days) of an Asian elephant
_____   _____

9. Number of pregnancies that take place daily worldwide
_____   _____

10. Length of time (in days) a snail can sleep if it isn’t disturbed
_____   _____

(From Russo and Schoemaker, Statistic Brain, and Odd Trivia Facts (Rich Hancock))

1. Mozart was born in 1756.
2. The Nile River is 4,187 miles long.
3. Lightning strikes the earth 6,000 times per minute.
4. It takes sunlight 492 seconds to reach the earth.
5. The diameter of the moon is 2,160 miles.
6. There are 13,092 knives, forks, and spoons in the White House.
7. There are an estimated 6,000 actively spoken languages in the world.
8. The gestation period of an Asian elephant is 645 days.
9. There are an estimated 365,000 conceptions daily.
10. A snail can sleep 1,095 days if not disturbed.

Were you successful in meeting the challenge? Did you answer 9 out of the 10 questions correctly? If you were not successful, there is bad news and good news. The bad news is that, like most people, you were overconfident in selecting ranges that were too narrow. The good news is that virtually the only people who aren’t overconfident on a regular basis are clinically depressed! (“Saving Yourself from Yourself,” Business Week, October 10, 1999)

Overconfidence is a trap that business school professors love to study. For example, finance professors have concluded that overconfidence in making investment decisions can lead to losses. Accounting professors have observed overconfidence when managers predict long-term earnings.

Overconfidence can also affect your negotiating strategy. I have noticed that in preparing for negotiation, students tend to predict ranges for potential agreement that are too narrow. This impacts their evaluation of the facts and their negotiation strategy. One consequence is that it can cause them to become too modest in establishing their negotiation goals.

In the next lesson, we explain how the manner in which you present choices to the other side in a negotiation can lead to success.

Best, George

Recommended book

Decision Traps by Russo and Schoemaker

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