On the Verges of Overconfidence

Economists have been concerned about issues of overconfidence at least since Adam Smith (1776, Book I, Chapter X), who wrote in The Wealth of Nations: “The over-weening conceit which the greater part of men have of their own abilities, is an ancient evil remarked by the philosophers and moralists of all ages.” Titans of modern economics have had similar reactions to the “ancient evil.” Daniel Kahneman recently told an interviewer that if he had a magic wand that could eliminate one human bias, he would do away with overconfidence. As Shariatmadari (2015) reports: “Not even he [Kahneman] believes that the various flaws that bedevil decision-making can be successfully corrected. The most damaging of these is overconfidence: the kind of optimism that leads governments to believe that wars are quickly winnable and capital projects will come in on budget despite statistics predicting exactly the opposite.” Kahneman argues that overconfidence “is built so deeply into the structure of the mind that you couldn’t change it without changing many other things.” Evidence concerning the prevalence of overconfidence is widespread and robust. Some of the results have even become fairly well-known in popular culture, like the findings that most drivers believe they are safer than a typical driver, or that