Are You on a Winning Streak?
“Overconfidence precedes carelessness.”
- Toba Beta
Have you ever reached a point in your life when you just seemed unstoppable? Everything was going your way, and you seemed to make all the right decisions all the time? Well, that is actually a very dangerous position to be in. You must be very careful to keep confidence in check. Most people in this situation use their inflated confidence as a substitute for relevant experience, knowledge and careful analysis. This leads them to make regrettable mistakes that can ruin their careers and lives.
Overconfidence is having an excessive amount of faith in our ability to get things done well, very often within a timeframe. Like with many other things in life, too much of a good thing can become a bad thing. Confidence is good, but being overconfident will make us overestimate our knowledge and skills, which can have very serious consequences in our personal or professional lives.
People’s overconfidence has led to disastrous events like the sinking of the Titanic in 1912, the loss of the Challenger space shuttle in 1986, and the mortgage crisis of 2008. In the lead to these events, people placed such a high level of value in their expertise that they could not look at what they were doing objectively. It’s okay to believe that we can do something when that belief is based on reality rather than false assumptions about the actual reality.
When we are overconfident, we don’t see our shortcomings and are convinced that our judgement is right. This is a dangerous attitude that more often than not affects many other people apart from us. In the most serious situations, people can be physically harmed or even lose their lives due to someone else’s overconfidence. This is what happened when Titanic sank, on April 15, 1912, and more than 1,500 people died, while just over 700 people survived. In a press interview in 1907, captain Edward Smith, commander of Titanic, said that he couldn’t imagine any conditions which could cause a modern ship to sink. Furthermore, based on his past successful experience with ships smaller than Titanic, he believed that Titanic could be maneuvered to avoid collision with any iceberg after establishing visual contact with the iceberg. For these reasons, Titanic’s speed wasn’t relaxed and the lookout for icebergs wasn’t increased, which made the collision inevitable. (Ribeiro, 2012)
While the sinking of Titanic is an event from the distant past, overconfidence keeps making thousands of victims every year across the entire world. Many serious accidents happen as a direct result overconfidence, mostly on the road. Every year, several thousand people lose their lives in car accidents caused by speeding drivers overconfident in their ability to control their cars at high speeds. In 2017, for example, 9,717 people lost their lives in the US in car crashes caused by speeding. That’s the equivalent of over 6 Titanics sinking in one year, and that number doesn’t include the people who died in accidents caused by alcohol-impaired drivers, which arguably suffer from an alcohol induced overconfidence when crashing their cars. (Road Safety Annual Report USA, 2019)
Overconfidence can affect many aspects of our lives and have consequences which can vary from small and short-lived in some situations to very serious and long lasting in others. It can destroy our finances if we make careless or very risky investments, or if we constantly spend more money than we can afford. It can ruin a great career opportunity for us if we don’t prepare properly for a job interview. It can cause us to fail important projects if we take them on without being competent enough to run them successfully. And it can also cause us to get seriously ill and end up in hospital or even die if we ignore our unhealthy habits or if we neglect to protect ourselves against deadly viruses, like Covid-19.
A very notorious example of an overconfident person in dealing with the Covid-19 pandemic, who later turned into an overly cautious individual after his personal encounter with the virus, is the UK prime minister, Boris Johnson. When the pandemic started to spread in the UK, in early March 2020, he dismissed the Covid-19 infection as something very similar to the seasonal flu and nothing to worry too much about. However, on March 27, the prime minister tested positive for coronavirus and his health aggravated within days. He had to be hospitalized on April 5 because his symptoms were persistent and he was moved to intensive care the following day, and given oxygen to help him breathe. His condition deteriorated so fast that his doctors put together a plan to deal with his potential death. He spent three nights in the intensive care unit, then he was moved back to a normal hospital ward and discharged from hospital a few days later, on April 12. After his personal battle with the Covid-19 infection, the UK prime minister’s attitude towards the dangers of Covid-19 has changed markedly and understandably so. (The Guardian, 2020)
Some common ways in which overconfidence can hurt your career and your finances include: taking jobs that you are not properly qualified for, starting a business in a field you know very little about, or starting a business in a field you are very knowledgeable about but wanting to do everything by your own and refusing to partner up with other people with complementary experience and skills.
If you rush to take a new job that appears to be exciting, although you know that you don’t meet all the key requirements, but you still feel very confident that you can quickly upgrade your knowledge and skills to be successful in this new role, you may end up in a very stressful situation, learning and doing things that you don’t like at all and eventually failing in the new job. This situation can be particularly stressful in a fast-paced environment, when you are against tight deadlines which you need to meet while trying to figure out how exactly to do your job properly in that new setting. What seems easy in theory, it is often more difficult and complicated in real life.
Similarly, starting a business in a field you have little or no knowledge in because you are very confident that you can do it successfully can also turn out to be a bad decision if you don’t know what issues to expect and how to deal with those issues effectively. It is, of course, possible to venture in a completely new field and build a successful business without having any prior experience in that particular field. However, your chances of success are higher, the more cautious you are, and lower, the more overconfident you are. Opening a restaurant is a good example of a business that seems easy enough for many people with some prior business experience to try, and many of them fail because they make poor decisions because they don’t know the subtleties and complexities of running a successful restaurant. They just assume it’s easy, based on their experience as customers, but this is just a false assumption that can lead to failure.
Even when starting a business in a field you actually know very well, overconfidence can also cause you many problems, which could eventually lead you to failure if you are not very careful. In these situations, it’s often tempting to become a solopreneur and try to do everything by yourself for too long, especially if you are afraid to share your new product or business idea with others because you think they may steal it from you and start competing with you from a stronger basis, having significantly more resources and money available to invest in the new product or business idea than you do. The problem is that in real life, when you start a new business, especially in technology, the number of tasks you need to perform and problems that you need to solve can grow out of control in a very short time and you will end up being overwhelmed and unable to do anything properly. An added difficulty for a solopreneur working mostly by themselves is switching between different tasks and business functions. For example, if you are a solopreneur currently focused on running a marketing campaign but need to fix an urgent bug or add an extra feature to the app that you are building as your product because every user is asking for it, it actually takes time for you to get back into the code, remember how it’s all put together, and then figure out how to fix the bug or build the new feature. And if something goes wrong with the marketing campaign while you are busy coding, most likely, you won’t catch that problem either. There are many negative implications stemmed from overloading your plate as a solopreneur and you need to be aware of all the main ones in order to be successful.
We can become a victim of our own overconfidence in two ways. Either by taking on single tasks which seem doable to us but which we prove incapable of doing or by taking on multiple tasks which we are capable of handling individually, but not all at the same time. For example, if you are overconfident in the workplace, you can end up taking on too much work by always saying yes to your boss or to your customers. As a result, you overload yourself with too many responsibilities and won’t be able to deliver everything on time and at the expected quality. So you will end up cutting corners, missing your deadlines, delivering poor quality work, even completely forgetting about some of your commitments, and in the end you will disappoint your boss, your company and your customers and may end up losing your job.
So, you need to do your research and make sure you have realistic expectations before taking on a new job or starting a new business, however exciting those may seem initially. You don’t want your dream job or dream business to turn into a nightmare, right? Just because something looks easy, it doesn’t automatically mean it is. It could also mean that you are fooling yourself or that you have been misled by someone.
Another major drawback of overconfidence is that we stop learning new things and improving ourselves. After all, we don’t need to learn anything at all if we think we know enough already, right? For this reason, overconfidence is a very unhealthy attitude which keeps us stuck in our current situation and prevents us from making the right decisions and making progress in our lives. Additionally, overconfidence makes us come across as arrogant and unpleasant, which can have a negative impact on our personal and professional lives as our friends, family and peers will probably start avoiding us.
The opposite of overconfidence is lack of confidence. This opposite attitude has one major downside to it because it prevents many otherwise capable people from achieving their true potential in their personal and professional lives. People who lack confidence tend to either overthink or over-prepare for an opportunity until it’s too late. Most of these people also believe that they are never good enough and that they will never be ready for what they keep preparing for.
Because overconfidence can set you up for massive failure in high-risk situations, while lack of confidence can lead to missed opportunities, the key to success in any new endeavors is to find the middle point between these two extremes.
Overconfidence in the Real World
Nick Adams is a descendant of one of America’s founding fathers and was once a successful investor with Wellington Management. His success came from investing consistently in traditional bank stock, which earned him 28% annual returns. If he continued on this path, he probably would have remained successful with his returns. However, he wanted to try his hand at something new.
He decided to pour hundreds of millions of dollars into two tech start-up companies, Mozido, Inc. and Powa Technologies Group, LLC. Mozido designs, develops, and provides mobile commerce and payment solutions on a global scale. Powa was known for its commerce, e-commerce and mobile commerce services. With the online revolution occurring, tech-based companies like this seemed like a solid investment for most people. Mr. Adams told other investors the companies were continuing to grow more valuable, and many of them heeded his advice and invested.
Reports came out later showing that these two tech companies were actually losing millions of dollars and had very low revenue when Nick Adams invested in them. Powa Technologies actually ended up filing for bankruptcy in 2016. The company had blown through about $200 million worth of investor capital. Mozido lost major sums as well.
Most big-time investors and entrepreneurs don’t mind taking risks to help increase their wealth. This is okay if the risk is calculated. For a calculated risk to occur, the individual must practice a healthy level of confidence. Mr. Adams, on the other hand, allowed his past success to go to his head, not realizing that past wins do not guarantee future success. He became overconfident with his predictions.
Mr. Adams’ overconfidence and lack of essential research led him to lose billions of dollars for himself and Wellington Management. Some estimates put the loss amount at $6 billion. This was about a 40% decrease in his company’s portfolio value from when the company was at its peak in 2014. This financial blunder was thoroughly described in a Wall Street Journal article in 2017. Mr. Adams ended up calling the investment the worst mistake in his 30-plus year investing career. (NexChange, 2017)
Overcoming the Overconfidence Bias
Given how dangerous overconfidence can be, it is paramount to avoid allowing it to bias our most important decisions. Sometimes we can make a quick recovery from a bad decision caused by overconfidence, learn a lesson and move on, but not always. In many circumstances, overconfidence can lead us into serious trouble that can have a long-term impact on our lives, and for this reason it’s important for us to cultivate habits that can help us avoid its negative influence. Here are few things you can do to prevent the overconfidence bias from affecting your decisions.
Know The Worst-Case Scenario And Take Calculated Risks
When it comes to venturing into a new project or experience, it is foolish to take risks without proper preparation. So, before making a ‘go’ or ‘no go’ decision, you must clarify several things in advance. You must determine what could go wrong and how likely it is for things to go wrong. You also need to figure out what to do if things go wrong. And most importantly, you need to know exactly what’s the worst that could happen, and whether you can afford or you can recover from the worst-case scenario if things go terribly wrong. To succeed in life at any level, you must be willing to take a certain amount of risk, but it must be a calculated risk that you can manage successfully.
While an overconfident person often comes across as arrogant, a merely confident and down-to-earth person often comes across as humble. They do not sing their own praises and allow other people, as well as their work, to speak for them. There is an adage that states something like, “Michael Jordan is the greatest of all time because he does not have to tell you that he is.” Rarely, if ever, will you see Michael Jordan out there telling everyone he is the greatest. Other people do it for him. Having a humble attitude allows you to slow down, get a better understanding of the tasks ahead and the risks involved, be realistic about any gaps in your knowledge and skills, acknowledge these gaps without worrying that you are losing face by being honest with yourself and others, ask for help from others when needed, avoid any foreseeable risks and mistakes and maximize your chances of success. Having a humble attitude will also make it easier for you to admit your own mistakes and learn from them.
Get An Expert Opinion
Because the main issue with overconfidence is failing to realize that there is a perilous gap between what we can do and what needs to be done, we need an objective way to confirm whether we have everything it takes to be successful in what we are trying to achieve or not. The best way to do this is to consult with people who are experts in the area that we are interested in. These people, who are also known as subject-matter experts, can help us understand the critical success factors, the risks involved, the hidden costs, the true financial investment needed for success, what key professionals we must hire to complement our skills and increase our chances of success, and so on. Where can you find the subject-matter experts to validate your assumptions and provide you with all these insights? You can find them by talking to your friends, peers and business partners and also online, as many of them have their own websites, podcasts and blogs, and have also published books on Amazon, courses on Udemy and Coursera, videos on YouTube, and answers on Quora.
Having the right level of confidence is key to make the right decisions in life. You need enough confidence to take the opportunities that can benefit you and move forward in life. But you also need to be realistic about your knowledge and skills and avoid jumping on opportunities that you are not ready for and that can actually hurt you to a large extent.
Stop and Think
When you are on a winning streak, going from one success to another, getting everything right, and about to make a very important decision, ask yourself:
● What exactly makes me feel so sure that I am making the right decision now?
● Is my decision based on sufficient and relevant information?
● Am I cutting any corners or jumping to conclusions?
● Who can I speak to in order to validate my assumptions?
● Do I know all the potential risks?
● Does anyone disagree with me? Do they have a valid point? Have I dismissed their views too quickly and without proper consideration?
● Are there any hidden costs or additional costs further down the line that I am not aware of?
● Is there anything important that I could be missing?
● Do I have enough experience and knowledge to make an informed decision in this particular instance?