Why People Are So Confident When They're Wrong（原声文稿）

international stock exchange, one of the junior traders makes an expensive mistake.

a client, she sold them instead, costing Bering's Bank nearly $40,000.

young trader keen to make his mark, decides to hide the loss.

account. That's account 88888.

It's used by banks immediately.

But when nobody from Bering's notices, he back the loss and get the team out of trouble.

mean, I'm confident I can get it back in that state.

proportions and lead to one of the biggest collapses in banking history.

overconfidence is the most dangerous of the human biases.

It leads us to take risks, make commitments, that will ultimately fail, sometimes in costly, embarrassing, and dangerous ways.

nuclear disaster to the loss of the space shuttle Challenger.

But overconfidence isn't reserved for just a few reckless individuals. We can all fall victim to it.

problem was identified in some now classic research with a set of simple quiz questions.

True or false, Australia is wider than the moon. Oh I bet they're about the same size.

It just looks small on a map but it's huge. Are there more or less stars in the milky way than trees on earth? More stars. More stars.

half grams, contains more chemical potential energy than an equivalent four and a half gram amount of TNT.

I'm going to say true. Oh no.

This feels kind of like a trick question.

The energy density of butter is ten times that of lithium batteries, right?

I mean lithium batteries are rubbish, everyone's going on about it. Just run your car on butter, I say.

than the average solar panel at absorbing the sun's energy.

research, more on those later, but the specifics don't really matter.

The interesting bit is what they asked next. How confident are you that you're... I don't think we actually had any expectations.

confidence assessment, but we didn't really know what we would find.

thinks they are and how accurate they actually are.

When people are 90% certain, they are right only 75% of the time.

online and found an even more extreme discrepancy.

of science questions and then asked how confident they were in their answer.

91 to 100% sure, were only correct 51% of the time.

Since the original research, these results have been rough. The state of the economy on a quarterly basis.

We find that they are on average too sure that they know what's going to happen.

something like 53% sure they have correctly predicted instance, and they are right like 23% of the time.

with what you actually know is called your calibration.

80% confident, you should be right, 80% of the time. But most of us are not well calibrated. 100%. 100%? Yeah.

Way, but there are 3 trillion trees on the Milky Way.

100% confidence. 100, yes.

Most of the time being overconfident isn't a huge issue.

But for Nick Leeson, the stakes soon became very high.

was to bet that the Japanese stock market would go up.

So, he went long on the top 225 companies in Japan, the Nikkei 225.

peaked two years previously, the Nikkei had been dropping from 38,000 to 16,000.

And he was confident the market would soon bottom out and start rising. But it continued to fall.

Over the next few weeks, it dropped to a low of 14,000.

wrong way with ever bigger and riskier bets.

losses, so the next win would bring him back above water.

win comes along, but the market collapse was unrelenting, and his losses ballooned from $40,000 to around $3 million.

confident, and eventually his luck turned around.

rebounded up to $20,000, and by the summer, that account was back in credit.

finally free of the hole he had dug himself into.

damaging loss that Lee Sin didn't want to admit, 88888, confident that if he'd got out of the previous one, he could do it again.

recover that initial loss, and as the losses mounted harder to make new trades to cover the last loss.

By the end of 1993, his losses exceeded $30 million.

but this tendency to overestimate our abilities is something we all share. So the question is why?

people default to, that is, we want to feel good about well-informed, that we enjoy enormous satisfaction from being told you so, and so we pretend to ourselves and others that we know when we don't.

version of an explanation for excessive faith in our own judgment.

Reichelt had faith in the idea, if nothing else.

But what if it's something more uncomfortable, stupidity?

was obsessed with solving the problem of aviation safety.

suit, which repeatedly failed during testing.

he didn't have enough height for it to work.

So in February 1912, he took it to the Eiffel Tower.

And rather than using a dummy to test it, he jumped himself.

Tragic, but also really dumb. Do you recognize this graph?

The Lake Dunning-Kruger graph? Are you confident that this is the actual Dunning-Kruger graph?

Not at all. In fact, I think that this is not the Dunning-Kruger graph. I think that this is a bit of a communication trick.

the Dunning-Kruger effect into Google Images.

that says that when you know very little about it, your confidence is high.

confidence sinks until you become a master at it.

But I think that the actual result was like a little bit more fuzzy than this.

meme that resonates with a lot of people, and it became conflated with the effect.

asked participants to estimate how well they performed. That produced this curve.

had the largest mismatch between their confidence and performance. They were the most overconfident.

Those who performed the best were actually slightly underconfident.

This suggests that overconfidence may be linked to how much we know.

Those who know less think that they know more than they do.

physics questions, and I also asked for their confidence results, accuracy spanned the full range from nearly 0% to 100%. But confidence varied over a much narrower range.

All the scores were roughly in the middle.

performers were actually slightly underconfident.

This is exactly what Dunning and Kruger found.

of us express at least kind of middle-of-the-road confidence.

which is how much information our brains are capable of processing.

the Kennedy Space Center in Cape Canaveral, boosters, make an emergency conference call.

plummet to 25 degrees Fahrenheit, far colder than any previous shuttle launch.

hours to gather data, create charts, and present their case.

temperature, hot gas erosion, joint rotation, and more.

But the data is scattered, incomplete, and not synthesized into a clear narrative.

Fahrenheit, so NASA managers were trying simultaneously patterns, joint dynamics, seal resiliency, pressure told the whole story, so overwhelmed by seemingly their rocket boosters were safe, vehicle management the launch.

At 11.38 the next morning, 73 seconds After launch, all seven crew members were killed.

thinking of all the ways that you could be wrong.

like us if it means considering everything that we don't know.

can hold in your head at one time is your short-term memory capacity.

capacity was linked to accuracy and overconfidence.

factual questions like the length of a river or the population of a city.

narrow, which effectively meant they were being overconfident.

were more often wrong and more likely to be overconfident.

their own performance.

As the memory load increased, suggest that assessing your accuracy is a mentally taxing task.

because of this, your brain can start using shortcuts.

together create systemic errors called cognitive biases.

One shortcut we use a lot is substituting hard questions with easier related ones.

and how many dates they'd had in the last month. Unsurprisingly, these two questions did not correlate.

matches on Tinder, at least for most people.

about their dates first, suddenly the correlation jumps to 0.66.

Working out how happy you are in your life is a difficult question. You have to consider many things and balance them all out.

happy am I in my life, with how many dates have I recently had?

Overconfidence from misprocessing information like this can be disastrous.

So, why are our brains wired this way?

You might expect natural selection to have wiped out the confidently incorrect.

But there is evidence that overconfidence can actually be advantageous.

Overconfidence can massively improve your status.

own assessments of their scale with objective measures.

multiple sessions, and assessing whether the desire for status led participants to exaggerate their abilities.

individuals were more likely to lead, assert themselves, and maintain influence.

and the evidence certainly shows, people react better to confident individuals.

University of Sussex measured brain activity of people after hearing who listened to the confident advice had increased cortex.

That's a brain region associated with processing means that human brains are biologically tuned to be literally feel better when we hear confident people.

potentially problematic incentive for anyone who's contending for positions that they want.

employment interviews or political campaigns, for instance, potential voters even if they're being overconfident. They can't actually deliver.

others, even if they can't ultimately deliver on those grand assertions.

while they should express maximal confidence.

Leeson knew this, and he took advantage of it.

profits, and everyone believed the illusion. They come in and they don't test any records. So I can't be happier.

sums from head office to keep doubling down, up to $5 million at a time.

trader, they granted his requests and continued to grant future requests.

requests for additional money, I never expect it to come.

account was nearly $260 million in the red.

from himself, inflating his perceived profits further.

Bering's received two awards, largely credited to Leeson.

seemingly responsible for $44 million in Bering's turnover that year.

overconfidence in himself would be the bank's downfall.

The figures are so big for the delusion on both sides.

Lee Sin's and Bering's overconfidence was amplified by the complexity and unpredictability of the market and the environment where there are clear rules and guaranteed outcomes like in a chess match, there is clear feedback on whether decisions are good or bad.

With reliable, it's especially problematic for political pundits.

think Romney's going to win by quite a bit.

So right now we have Hillary's about a 75 or an 80% favorite.

previous US presidential elections, using his 13 keys to the White in 2024, he predicted that Kamala Harris will be a precedent-breaking president. Look what happened. Is this crazy?

spread of disinformation that misled the electorate.

feedback Lee Sin had received was inconsistent.

He was making some bad trades, but he had also won it all back before.

And this significantly clouded his judgment, amplifying his overconfidence.

hundreds of millions, and Bering's had unwittingly sent him $1 billion.

capital base, they were legally only allowed to lend around a quarter of that. But no one questioned it. They were all blinded by his apparent success.

he estimates that he was probably half of the entire Nikkei futures market.

time and hope that the market went his way. And for a while it worked.

anything on the horizon that would change this. But then disaster struck.

Japan is tonight in a state of mourning and of shock.

Henshin earthquake struck Japan, 20 kilometers from the city of Kobe.

With a magnitude of 6.9 it devastated the city, which was one of Japan's key ports.

market. The Nikkei index plunged 1,055 points.

risked even more money.

He bet heavily that the Nikkei didn't.

And in the end, in today's money, Lee Sin had February, Lee Sin went on the run.

Three days later, Overconfidence confidence was at least partially to blame for its downfall.

Realizing the walls were closing in, Lisen fled to Malaysia and then Thailand. But his escape was short-lived.

extradited to face justice, marking the end of a spectacularly destructive gamble. He was just 28 years old.

Now, we don't all bring down banks, but we are all vulnerable to overconfidence.

feedback where our brains are overwhelmed, a set of simplistic biases can take over.

And we all too often end up thinking we know more than we do. So what can we actually do about this?

confidence judgments by keeping track and keeping score.

going to take you to get me comments on this paper draft we're working on? I don't promise I'll do it by Friday.

like, I think there's a 60% chance I can get you comments by Friday.

They'll often react with a quizzical look or a laugh.

calibration is the obvious way to improve, but so is being intellectually humble.

overconfidence is not so much information as feedback.

sometimes I do have a little bit of overconfidence.

particular, we should listen to people who disagree with us.

Understanding disagree with you have that you lack, is very helpful for making better decisions.

The best calibrated people aren't those who know the most. It's those who know what they don't know.

but in knowing the limits of your own certainty.

And that's an idea that's inspired our latest project. All those questions I asked?

They come from a new board game that we've made. It's called Elements of Truth.

The game contains over 800 fascinating science trivia questions with a twist.

The number of points you win on each question depends on how confident you are. You can bid any number from 1 to 10.

of someone else who you think should know the answer.

discussions that go way beyond the initial questions.

specific topics like physics, technology, engineering, and astronomy.