Why People Are So Confident When They're Wrong

Friday the 17th of July 1992. Amidst the chaos of the trading floor at Singapore's International Stock Exchange, one of the junior traders makes an expensive mistake. Instead of buying 20 futures contracts for a client, she sold them instead, costing Beerings Bank nearly $40,000. To save her job, her boss, Nick Leon, a young trader keen to make his mark, decides to hide the loss.

He puts it in an obscure error account. That's account 88888. It's used by banks to solve small discrepancies in trades. It's a dangerous move and it should have been picked up by the central office immediately.

But when nobody from bearings notices, he gains confidence, convinced he can win back the loss and get the team out of trouble. >> I'm operating in the belief that I can get it back. You know, maybe it goes back to the confidence thing. I don't know.

I mean, I'm confident I can get it back at that stage. But Leon's staggering overconfidence would create a debt of gargantuan proportions and lead to one of the biggest collapses in banking history. It's easy for me to make the case that overconfidence is the most dangerous of the human biases. Overconfidence gets us into all sorts of trouble.

It leads us to take risks, make commitments, enter contests, try things that will ultimately fail, sometimes in costly, embarrassing, and dangerous ways. Overconfidence has been implicated in almost every big disaster, from the sinking of the Titanic to the Chernobyl 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.

For example, 93% of us think we are better drivers than the median, which is of course impossible. The scale of the 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's just it 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. >> One teaspoon of pure olive oil, >> 4 1/2 g, contains more chemical potential energy than an equivalent 4 1/2 g amount of TNT. >> I'm going to say true. >> Oh no, >> ...