Whether it’s playing poker, singing, writing short stories, or investing, amateurs are far more likely to think they are experts than actual experts are. Without Dunning-Kruger Effect, the Indian Idol auditions would never enjoy high TRPs.
One of the most popular categories of videos on YouTube is clips from reality TV competition shows where amateur participants come to show off their raw talent. Apart from a handful of participants who do have real talent, majority of them usually get insulted by the TV show judges and end up making fools of themselves. Sometimes I feel that entertainment media deliberately dramatize those horrible audition performances (not sure if you can call those acts as performance). What brings initial TRP for these reality shows are those hilarious episodes showcasing novices who believe their talent is nothing less than that of a celebrity superstar.
That’s the interesting part about these competitive reality shows. TV audience soon forgets about the eventual winners but those few episodes, during audition round where amateurs embarrass themselves, continue to garner millions of views on social media.
“What makes you think that you can win Indian Idol?” asked one of the celebrity judges.
“My singing capabilities have always been praised by my friends and family. I have even performed at my school and college multiple times,” replied the participant whose singing was horribly off-key. And to add insult to an injury, his voice was anything but melodious.
The panel of judges squirmed. “Just because your friends think you sing well, you think you have the talent to compete at the national level?” asked one of the judges from the panel.
Can someone be so ignorant of his own abilities? Are they so enamoured with their limited talent that they can’t see the huge gap that exists between what they think they have and what they really have? Well, there’s a reason for such delusion.
Imagine that you can perform certain task slightly better than your friends, family, and other acquaintances. Which means every time you compete with them – poker, chess, anything – you always win. This makes you think that you could win a tournament. So, you confidently saunter into the next regional tournament; you pay the entrance fee and soon get your head handed to you in the very first round.
The realization sets in – you aren’t so smart after all. All this time, you thought you were the best, but you were really just an amateur. This tendency to overestimate our abilities is called as the Dunning-Kruger Effect.
It’s a basic element of human nature. In other words, Dunning-Kruger effect is the delusion that we can predict how well we would perform in any situation. The truth is that most of us are generally pretty bad at estimating our competence and the difficulty of complex tasks.
The name Dunning-Kruger was coined by the researchers Justin Kruger and David Dunning from Cornell university. Their studies confirmed that most people (though not all) are not good in estimating their own competence. Their research won them an an Ig Nobel prize in 2000.
David McRaney, in his wonderful book Your Are Not That Smart, explains –
The more skilled you are, the more practice you’ve put in, the more experience you have, the better you can compare yourself to others. As you strive to improve, you begin to better understand where you need work. You start to see the complexity and nuance; you discover masters of your craft and compare yourself to them and see where you are lacking. On the other hand, the less skilled you are, the less practice you’ve put in, and the fewer experiences you have, the worse you are at comparing yourself to others on certain tasks. Your peers don’t call you out because they know as little as you do, or they don’t want to hurt your feelings. Your narrow advantage over novices leads you to think you are the shit.
I had my first brush with Dunning-Kruger effect early in life. I had good academic record till 12th standard and stayed in top 5 throughout my schooling. As a bonus, I even managed to secure a rank in prestigious IIT entrance exam and found myself in IIT Bombay. I conveniently assumed that four years of engineering would be a cake-walk just like my school studies. But that’s when the streak ended – in the very first semester. My over-confidence was chopped into tiny pieces and served to me in the form of a mark sheet which said – barely managed to pass. For one, all my college mates were toppers in their schools. So I wasn’t competing with average. I was pitted against the country’s best students. And the relative grading at IIT was a double whammy. Which means even if I scored 80 out of 100 marks, it could still land me a ‘D’ if everyone else scored more than 80.
Around the time when the first-semester mark sheet revealed the ugly face of my real academic skills, I started taking interest in guitar. Fortunately, the progress in first few days of learning guitar was remarkable, at least as perceived by my own untrained ears. In just 3 to 4 days I went from not knowing how to hold a guitar to playing few songs. Although, I was playing with only the first two strings on the instrument. Nevertheless, it provided some solace against the damage caused by falling grades. Yours truly now had a reason to marvel at his newly acquired musical talent. I even thought of performing on the stage at a cultural festival. That’s how stupid I was. Not only was I stupid but I was too stupid to know how stupid I was. Like the man who originally inspired Dunning and Kruger’s research. This man attempted to rob a bank while his face was covered in lemon juice. The robber was strongly convinced that lemon juice would make his face unrecognizable. So he went ahead and robbed a bank. Thank goodness, I didn’t act on the thought of performing on the stage.
The time it takes to go from novice to amateur feels rapid, and that’s where the Dunning-Kruger effect strikes, writes McRaney, “You think the same amount of practice will move you from amateur to expert, but it won’t.”
It’s been 18 years when I first picked up the guitar and I am yet to graduate beyond those few songs that I learned to strum. In 1999, while Mr. Dunning and Mr. Kruger were formulating their theory, my adventures were building the most authentic case study to validate their hypothesis. Had they contacted me, perhaps it would have been my name in their Nobel acceptance speech instead of that stupid lemon juice bank robber.
Most new investors get introduced to stocks during the bull markets. The rising prices and the prospect of making quick profits lure the uninformed investors into the world of stocks. Stock brokers and financial institutions add fuel to the fire by portraying rosy pictures and promising extraordinary profits from stock market investing.
In this scenario, it’s not uncommon for new investors to get initiated into the stock market by making few thousand-rupees of quick and easy trading profits. It’s called beginner’s luck. Charles Darwin said it best: “Ignorance more frequently begets confidence than does knowledge.”
It has been proved scientifically that the effect of effortless money on the human brain is quite similar to the one produced by cocaine. Guy Spier, a noted value investor, likes to call it “The Cocaine Brain.” Unsuspecting investors don’t realize that their initial profits are primarily because of the luck i.e., rising markets and not because of their investing skills. This creates an illusion of skill. This false confidence based on incomplete investing knowledge motivates the new investor to take bigger risks with their hard-earned money. And when markets turn, the shocked investors can’t fathom what hit them.
This is how Dunning-Kruger effect exposes thousands of investors, especially during bull markets, to extreme risks. What’s the biggest downside of this effect? Unpreparedness. Not expecting a loss is what creates the biggest risk.
Gary Belsky and Thomas Gilovich, in their book Why Smart People Make Big Money Mistakes, write –
Overconfidence often appears as unrealistically high appraisal of our own qualities versus those of others. The classic example of this tendency is seen in a 1981 survey of car drivers in Sweden, in which 90 percent described themselves as above average drivers. Clearly, a lot of respondents were giving themselves the benefit of what should have been a very large doubt.
The best antidote to overconfidence is a mix of humility and awareness of one’s ignorance. Knowing what we know is far less important than knowing what we don’t know. David McRaney suggests –
Everyone experiences the Dunning-Kruger effect from time to time. Being honest with yourself and recognizing all your faults and weaknesses is not a pleasant way to live. Feeling inadequate or incompetent is paralyzing—you have to plow through those emotions to get out of bed. Seen along a spectrum, Dunning-Kruger is on the opposite end from depression with its crippling insecurity.
Don’t let the Dunning-Kruger effect cast its shadow over you. If you want to be great at something, you have to practice, and then you have to sample the work of people who have been doing it for their whole lives. Compare and contrast and eat some humble pie.
In 2014, during Berkshire Hathaway’s annual meeting, Charlie Munger said –
If there’s any secret we have, it’s ignorance removal. If it weren’t for the fact that we were so good at removing ignorance, we’d be nothing today. And the nice thing is we still have a lot more ignorance let to remove.
The more you know about your ignorance, the better is the chance that you’ll not bet big money on something which you don’t understand. Risk is essentially getting into something that you don’t understand, claims Warren Buffett.
Philosopher Bertrand Russell once said, “In the modern world the stupid are cocksure while the intelligent are full of doubt.”
Dunning-Kruger effect sounds like a cousin of overconfidence bias. However, there’s a subtle difference. Overconfidence bias mostly plagues the experts. Dunning-Kruger is a disease of amateurs. It originates from ignorance.
The less we know about a subject, the less we believe there is to know in total. As a corollary, the more we know, we realize, the more there is to know. That’s the paradox of knowledge.
I would like to leave you with this powerful quote from ancient philosopher Seneca –
I am wiser than this man, for neither of us appears to know anything great and good; but he fancies he knows something, although he knows nothing; whereas I, as I do not know anything, so I do not fancy I do. In this trifling particular, then, I appear to be wiser than he, because I do not fancy I know what I do not know.
The purpose of this Behaviouronomics series is to build a collection of human follies. If you collect follies the way I do, says Charlie Munger, “and stay away from the follies, when you’re old as I am, you’ll be a rich old man.”
On another occasion Munger said, “I don’t have any wonderful insights that other people don’t have. Just slightly more consistently than others, I’ve avoided idiocy…All I’m trying to be is be non-idiotic. I find that that’s all you have to do to get ahead in life is to be non-idiotic and live a long time.”
To that I have nothing to add.[/show_to] [hide_from accesslevel=’almanack’]
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