Perfectly Confident

How to Calibrate Your Decisions Wisely

Don A. Moore

• Publisher: Harper Business
• Year: 2020
• ISBN:
  9780062887771
• Topic: Business
• Subtopic: Leadership
• Index: Business

An expert on the psychology of decision making at Berkeley's Haas School of Business helps readers calibrate their confidence, arguing that some confidence is good, but overconfidence can hinder growth. A surge of confidence can feel fantastic—offering a rush of energy, even a dazzling vision of the future. It can give us courage and bolster our determination when facing adversity. But if that self-assurance leads us to pursue impossible goals, it can waste time, money, and energy. Self-help books and motivational speakers tell us that the more confident we are, the better. But this way of thinking can lead to enormous trouble.

Decades of research demonstrates that we often have an over-inflated sense of self and are rarely as good as we believe. Perfectly Confident is the first book to bring together the best psychological and economic studies to explain exactly what confidence is, when it can be helpful, and when it can be destructive in our lives.

Confidence is an attitude that takes into account both personal feelings and the facts. Don Moore identifies the ways confidence behaves in real life and raises thought-provoking questions. How optimistic should you be about an uncertain future? What justifies your confidence in something amorphous and subjective like your attractiveness or sense of humor?

Moore reminds us that the key to success is to avoid being both over- and under-confident. In this essential guide, he shows how to become perfectly confident—how to strive for and maintain the well-calibrated, adaptive confidence that can elevate all areas of our lives.

Part I

Over and Under

Chapter 1 introduces a new view of confidence—not as it exists in the popular imagination, but as it behaves in real life. Chapter 2 invites you to reconsider what you think you know and ponder the multitudinous and multifaceted ways in which you might be wrong. Chapter 3 gets serious about cataloging the many ways in which you might be wrong by helping you think about your uncertainty in distributions of possible outcomes and associating probabilities with each of them. Chapter 4 confronts the issue of wishful thinking and helps you consider how your preferences can bias your confidence and your forecasts for the future. Together, the first four chapters of this book illustrate how easy it is to wander off the middle way into over- or underconfidence. They identify the bad assumptions about confidence that may get in the way of finding the truth.

Part II is designed to help you find your way back to perfect confidence. Chapters 5, 6, and 7 identify reliable signposts to guide you toward the middle way, providing specific recommendations and useful strategies. Together, the book’s two halves demonstrate how to manage and maintain well-calibrated confidence. Chapter 8 concludes with an ode to the middle way, rooted in well-calibrated wisdom. The middle way enables you to see the truth and understand all that you are capable of, and how to achieve it. It helps you steer clear of mistakes that can put you at risk for missed opportunities, embarrassment, and pain.

Chapter 1

What Is Confidence?

Confident people change the world. Consider Elon Musk, the South African immigrant to the United States who, as a young man, helped create PayPal, transforming the way people pay online. When PayPal was acquired by eBay in 2002, Musk used the money to invest in Tesla, the electric car company that upended the automobile market. Tesla’s market capitalization now makes it worth almost as much as General Motors. At the same time, Musk created SpaceX and revolutionized the business of launching satellites into space. He has announced plans for SpaceX to send humans to Mars in 2024 and, from there, to colonize other planets. Musk does not lack for ambition.

Musk’s fascination with space exploration traces back to a youthful love of science fiction. His brother, Kimbal, remembers that, as a child, Elon would read for as many as ten hours a day. When he ran out of books to read in his school’s library, he just started reading the encyclopedia. His sharp concentration and relentless work ethic were evident years later at Zip2, the company that Musk founded with Kimbal. Musk routinely worked late into the night. He would often wind up falling asleep in the beanbag chair next to his desk. “Almost every day, I’d come in at seven thirty or eight a.m., and he’d be asleep right there,” recalled Jeff Heilman, one of Zip2’s first employees. Musk would wake up and get right back to work. “Maybe he showered on the weekends,” Heilman speculated.

As a child, Musk’s bookishness did not always endear him to other children. “But Mom, he’s not fun,” his siblings objected when their mother implored them to include Elon in their play. Musk’s social awkwardness continued into adulthood. Doris Downes, one of his colleagues at Zip2, recalls: “Someone complained about a technical change that we wanted being impossible. Elon turned and said, ‘I don’t really give a damn what you think,’ and walked out of the meeting. For Elon, the word no does not exist, and he expects that attitude from everyone around him.”

SpaceX has transformed the business of launching rockets by bringing the price down to a fraction of what it used to be. Musk achieved this, in part, through relentless innovation. He saw expensive waste built into the deals between the US government and the contractors who had been building its rockets for decades. Musk did better by pushing the company and his people to pursue ambitious goals for both production timetables and costs. He worked hard to accomplish these goals and had high expectations of those who worked with him. Kevin Brogan, employee number twenty-three at SpaceX, recounts, “He doesn’t say, ‘You have to do this.’ He says, ‘I need the impossible done by Friday at 2 p.m. Can you do it?’” And often Musk’s employees do.

Musk’s story is just one example of the close tie between confidence and success. More-confident entrepreneurs, like Musk, are often more successful. Confident applicants are more likely to get hired, and confident political candidates are more likely to get elected. All around us, we see confidence precede success, which makes it tempting to conclude that cultivating confidence increases the odds of success. But focusing on those who wound up as winners is problematic, because it ignores two problems.

The first problem is that it risks confusing cause and effect. Is confidence really the cause, or is it possible that it is merely a consequence of something deeper—actual talent, financial advantage, or strategic positioning? For instance, strong job applicants with great credentials and a proven record of success have good reasons to be confident. Elon Musk is an enormously intelligent and talented person with many impressive achievements to his credit. He has a lot of money, tremendous power, and good reason to be confident about his potential success. In many cases, both confidence and success may share the same underlying cause.

Sports is another domain in which confidence is closely associated with success. It is easy to think of confident and successful athletes, such as the talented LeBron James who, at the tender age of sixteen, had CHOSEN 1 tattooed on his back. Did the same confidence that led him to make such a bold claim at such a young age also contribute to his many subsequent successes? An answer to that question should consider other sixteen-year-olds and their own claims to greatness. In a sport like basketball, in which boasting has been elevated to an art form, plenty of big talkers have not experienced NBA success.

The second problem with focusing on confident winners is that it overlooks the instances in which confidence has preceded failure. Plenty of confident people fail. It is the same confident Elon Musk who has experienced great successes and great failures. In 1996, he was ousted as CEO of Zip2. Four years later, he was ousted from PayPal. The first rockets launched by SpaceX blew up disastrously. The first Falcon 1 launch failed only twenty-five seconds after takeoff. The second launch, a year later, flew for four minutes before breaking up. Tesla, too, has had more than its share of trouble. In May 2016, Musk announced plans to produce 200,000 Model 3 sedans by the end of 2017. In fact, the company produced only a tenth of that number. Employees at Tesla were working overtime to ramp up production, but it just wasn’t happening fast enough. “I’m back to sleeping at the factory,” Musk tweeted in April 2018. “Car biz is hell.”

CONFIDENCE INTERVALS

To help you calibrate your confidence, I would like to invite you to play a little game with me. The table that follows lists ten quantities of which you are uncertain. For each one, please identify your answer, with a 90 percent confidence interval. A confidence interval consists of two numbers, one below your best guess and one above your best guess. That range should be wide enough that you are 90 percent sure the right answer is somewhere between. Obviously, the surer you are, the narrower you can make the confidence interval. If the question was about the date of your own birth, you could make the confidence interval very precise indeed. The less certain you become, the wider you should make the confidence interval. Your challenge is to calibrate your intervals so that you are 90 percent sure the right answer is inside it.

One way to think about it is like this: Set the lower bound so low that there is only a 5 percent chance the truth is below it (and a 95 percent chance the truth is above it). Then set the upper bound so high that there is only a 5 percent chance the truth is above it (and a 95 percent chance the truth is below it). With only a 10 percent chance the truth is outside the range, you should have a 90 percent confidence interval.

Without consulting any reference materials or other people, please estimate 90 percent confidence intervals for the ten quantities in the table.

	Lower Bound	Upper Bound
1. World population, according to the US Census Bureau on September 12, 2019
2. Year in which Orville Wright took the world’s first powered heavier-than-air flight
3. Hourly wage that Steve Jobs paid designer Dean Hovey for creating Apple’s mouse
4. Maximum depth (below sea level) of the Mariana Trench in the Pacific Ocean
5. Total revenues of the Tesla corporation in 2018 (according to its annual report)
6. Year in which Daniel Kahneman won the Nobel Prize in Economics
7. Amount of money that Google paid to buy YouTube in 2007
8. LeBron James’s average points per game in his NBA career, as of July 2019
9. Year in which William James first taught a psychology class at Harvard University
10. Year in which Maya Angelou was awarded the Presidential Medal of Freedom

Did you really take the time to answer the questions? Please do. It gives you some skin in this game. It improves your ability to apply the insights offered here to yourself and to your own decisions.

For how many of these questions should the right answer have landed between your lower and upper bounds? Well, if you have calibrated your confidence correctly, then each one should have a 90 percent chance of hitting. Out of ten items, nine should be inside the confidence interval. Read on to discover the right answers. How many did you get?

If you are like most people, your hit rate was substantially below 90 percent. In fact, hit rates inside 90 percent confidence intervals are closer to 50 percent. By drawing your confidence intervals too narrowly, you are acting as if you are surer than you deserve to be that your knowledge is correct. Your judgments reveal overprecision. This phenomenon also occurs for other ways people specify their confidence. It is not isolated to obscure trivia questions and 90 percent confidence intervals. In fact, overprecision emerges in nearly all the tests of it psychologists have devised. People usually act as if they are surer than they should be.

Research on “flashbulb memories” illustrates the illusion of knowing. These are memories that feel as accurate and faithful as a photograph. Many people, for example, recall with vivid clarity the moment they first learned of the terrorist attacks of September 11, 2001. If your flashbulb memories are as accurate as you think they are, then the same incident should be remembered the same way by others who shared that moment. But they are not. When researchers cross-checked people’s recollections, they discovered that those who were present in one another’s flashbulb memories often had inconsistent recollections of what happened—but they were nevertheless absolutely convinced that their own memories were correct.

When the question is not “What is the world’s population?” but “How much steel reinforcement is needed to prevent my bridge from collapsing?” then calibrating confidence judgments may be a matter of life and death. An architect who is too confident in a bridge’s design could skimp on structural supports. You probably also don’t want the underconfident architect who doubles the cost of the building, adding expensive earthquake reinforcements to your office building in Minneapolis, where earthquakes are unheard of. What you want in an architect, what you want in an employee, what you want in a life partner, and what you want in yourself is good calibration: the wisdom to see the truth, and to be as confident as evidence justifies.

	Correct answer
1. World population, according to the US Census Bureau on September 12, 2019	7.598 billion
2. Year in which Orville Wright took the world’s first powered heavier-than-air flight	1903
3. Hourly wage that Steve Jobs paid designer Dean Hovey for creating Apple’s mouse	$35
4. Maximum depth (below sea level) of the Mariana Trench in the Pacific Ocean	36,070 ft.
5. Total revenues of the Tesla corporation in 2018 (according to its annual report)	$21.46 billion
6. Year in which Daniel Kahneman won the Nobel Prize in Economics	2002
7. Amount that Google paid to buy YouTube in 2007	$1.65 billion
8. LeBron James’s average points per game in his NBA career, as of July 2019	27.2
9. Year in which William James first taught a psychology class at Harvard University	1873
10. Year in which Maya Angelou was awarded the Presidential Medal of Freedom	2010

OVERCONFIDENCE

Overconfidence sits at the center of decision biases that lead to error and irrationality. Scott Plous wrote that “no problem in judgment and decision making is more prevalent and more potentially catastrophic than overconfidence.” Daniel Kahneman, who won a 2002 Nobel Prize in Economics for his research on cognitive biases, wrote that overconfidence is “the most significant of the cognitive biases.” These claims are built on a strong consensus among those who have studied overconfidence, underscoring the importance and pervasiveness of overconfidence in human judgment. It would not be an exaggeration to say that overconfidence is the mother of all psychological biases. I mean this in two ways.

First, overconfidence is one of the largest and most ubiquitous of the many biases to which human judgment is vulnerable. “Perhaps the most robus...

Table of contents

• Cover
• Title Page
• Dedication
• Contents
• Introduction
• Part I: Over and Under
• Part II: Just Right
• Acknowledgments
• Notes
• Index
• About the Author
• Copyright
• About the Publisher