Last year, while delivering a talk to a group of investment professionals, I asked a simple question: “How many of you feel that you are better investors than your peers in the industry?” About 80% of the audience answered affirmatively using anonymous electronic polling devices.
While this may seem shocking and the audience chuckled, I noted that there’s nothing inherently wrong with everyone in the room being above average. After all, the room was filled with individuals who had invested time, money and efforts towards their professional development. They weren’t typical of the industry…and in fact, it is highly believable that they are better than their peers in the industry.
So I asked another question: “How may of you feel that you are better investors than your peers in this room?” This time slightly less than two-thirds (65%) of the audience answered affirmatively. Again, the audience chuckled...and this time, I joined them.
We had just demonstrated the Lake Wobegon effect , named after Garrison Keillor’s fictional town in which all children are above average. In fact, this illusory superiority is a cognitive bias that has been researched with consistent results across a host of professionals from doctors to investors to academics. It’s also found across age groups.
We humans have a very poor sense of our relative capabilities.
A survey of more than 1 million high school seniors conducted by the College Board found that 70% felt their leadership skills were above average while a mere 2% claimed “below average” capabilities. Other research has found that college seniors take approximately 3 weeks longer to complete their thesis than their most “realistic” estimate…and often around 1 week longer than their “worst case” scenario! This illusory superiority effect is more extreme in MBA programs, where almost 87% of students in one program believed they were in the top two quartiles of their class. And lest we think professors are immune, 90%+ claim to do above average work, with more than 68% believing they are among the top 25% in terms of teaching quality, according to other research.
And then…drum roll, please…for one of the most extreme manifestations of documented overconfidence in the literature. Ready? A full 93% of American drivers feel they are better than the median driver, as documented in other research.
While it’s fun to discuss the rampant overconfidence found among students and professors, or even drivers, it can get downright scary to consider the implications in medicine. A study conducted at the Baylor College of Medicine found that doctors facing hard cases were accurate in their diagnosis a mere 6% of the time, despite having confidence comparable to how they felt on easier cases in which they were accurate more than half the time. Medical overconfidence can literally kill, as noted by a study in which 90 diagnostic errors made over a year led to 36 serious complications and 27 deaths. Yikes!
So why do we human so consistently over-rate our relative capabilities? Why do so many of us actually believe we’re better than average? One possibility is that it’s useful to do so. Overconfident people tend to be granted higher social status by their peers, as noted by many sociologists, so perhaps there are good reasons to act this way. Remember the scene in Top Gun where Viper (the flight instructor) asks Maverick (a student) if he thinks his name will be on the plaque of the best fighter pilots?
Maverick: “Yes, sir.”
Viper: “That’s pretty arrogant, considering the company you’re in.”
Maverick: “Yes, sir.”
Viper: “I like that in a pilot”
Regardless of the rationale for why so many of us believe so highly in our relative abilities, the blunt reality is that we simply cannot all be above average. Give our robust human tendency to think so, however, we might all be well served by reflecting not only on our relative strengths, but also our relative weaknesses. An honest self-assessment of our “below average” capabilities can steer us towards developing those skills, and an understanding of relative deficiencies can guide our professional development plans.
But none of this should change how we think of our relative strengths, because ultimately, what matters most is how you see yourself.