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Behavioral economics

Overconfidence pays off

München, 08/14/2019

A new study from LMU shows that people who overestimate their own abilities do so because it actually makes them more persuasive in interactions with others.

Foto: Viacheslav Iakobchuk / AdobeStock

People who have an exaggerated sense of their own abilities find it easier to persuade others of their worth, according to new study authored by LMU economist Peter Schwardmann and Joël van der Weele of the University of Amsterdam, which appears in the journal Nature Human Behaviour. “Since the 1970s, studies have repeatedly shown that people often overestimate themselves – they regard themselves as smarter, prettier and friendlier than others. We set out to discover why that is so,” says Peter Schwardmann.

The new study is based on the results of a behavioral experiment in which 288 subjects completed an IQ test, and were asked to assess their own performance in relation to that of other participants. The participants were then divided into two groups. The members of one group were informed that if they could persuade an ‘employer’ in a short face-to-face ‘interview’ that they had done better in the test than others, then they would earn extra money. This information caused them to self-deceive into higher confidence than participants in the control group – who had not been so informed. “The prospect of an encounter, in which I am expected to make a good impression on my interlocutor is enough to enhance my opinion of myself, and my greater confidence in turn improves my chances of coming across convincingly,” says Schwardmann.

schwardmann_535_webThe authors then tested the effect of enhanced self-confidence by giving participants positive feedback regarding their performance in the IQ tests. And indeed, those who believed that they had done well in the test performed better in the subsequent interview. Their higher levels of confidence had an effect on how they were being evaluated through both their verbal performance and their body language.

“A high level of self-confidence can be socially beneficial, and that leads us to overestimate our own abilities,” says Schwardmann. “This implies that it is likely to be more prevalent in settings in which its strategic value is highest. That is, in contexts in which measures of true ability are noisy, competition is fierce and persuasion is an important part of success, individuals who overestimate themselves will be more successful than others.” On this basis, the authors suggest that overconfidence is likely to be particularly valuable for the self-employed and among high-level professionals in law, management and politics. “Overconfidence is a positive misjudgment of one’s own performance and capabilities. Our study does not address its further implications. But there are studies which show, for example, that CEOs who have a very high estimate of their own abilities are more willing to take great risks in negotiations on company mergers.”
Nature Human Behaviour 2019

See also:
Behind the Paper: “Show me someone without an ego, and I'll show you a loser”