The Dunning–Kruger effect

The Dunning–Kruger effect is the tendency of underprepared people to provide evidence that they are overprepared. It is the phenomenon that winning at something often requires little preparation. In other words, the underprepared person has no idea what hard work is or how to do it, so they give an impression of being very well prepared – and therefore successful – while being a complete failure.

Or perhaps even worse: the overprepared person gives false evidence of their success, by claiming innovation and brilliance when (in reality) they have done nothing but read a bunch of general-purpose books. This effect has been known since the time of Plato in ancient Greece and Aristotle in ancient Greece, but it is more fully understood only in recent years. The result is that people overestimate their own abilities and underestimate those of others. There are multiple psychological mechanisms at work here: a tendency to underestimate one’s own abilities; a tendency to exaggerate one’s ability; a tendency to believe that one can make any change happen by sheer willpower; and a tendency towards confirmation bias (a psychological phenomenon in which people tend to seek out information which confirms their existing beliefs).

In layman’s terms, we humans tend to be risk-averse when it comes to accepting risks (i.e., adopting new ideas or projects), but risk-tolerant when it comes to accepting new ideas or projects (i.e., taking on projects where there are no obvious risks).

The Dunning Kruger Effect

In the book The Dunning-Kruger Effect by Dan Pink, he discusses how people fail to recognise the failure of their own performance when compared to that of other people who are doing better than them. Just as a person can’t check his own work against that of others, neither can a company — it has never happened.

It is easy to fall into the trap of thinking one is on par with the competition based on their numbers and geographical reach, but this is misleading. Maybe they have more employees than you do; maybe they have more clients or customers; maybe they have more money in their bank account. But the fact that this is possible only increases our belief in our own prowess and incompetence.

The Dunning-Kruger effect gets at the paradoxical self-perception of many entrepreneurs: “I am smarter than everyone else on my team”, “I am better than everyone else at XYZ” and so on. In psychology research, self-fulfilling prophecy is called a misperception or an illusion of self: If you think you are good at something (e.g., ‘I’m smarter than everyone else’) then you will do well at it (e.g., perform better). If you think that your performance is above average (i.e., you would be doing better if someone else was doing it), then you won’t perform at your best (and vice versa).

If there are not any external forces pushing us towards our best performance, we tend to believe we are capable of this even if we are not actually so; conversely, if there are external forces pushing us towards our worst performances, we tend to believe that we aren’t capable of it even if we are actually so.

This phenomenon has been studied in various contexts including sports and education but its essence remains unchanged: we make decisions based on what others tell us about ourselves rather than what we ourselves actually know about ourselves. It is easy for a person to feel confident about his/her abilities/performance when no one else seems to have confidence in theirs as well; likewise easy for a company to feel confident about its abilities/performance when no one else seems to have confidence in theirs as well.

For example, I personally believe I am much smarter than most people around me and therefore I should land high positions in conferences and manage projects by myself instead

How the Dunning Kruger Effect Affects Real People

This post is about the Dunning Kruger effect, which is the tendency to overestimate the impact of a task. In other words, you underestimate how badly you will perform a task. It’s an inevitable consequence of being human: we all tend to overestimate our own abilities, that’s just what we are like.

But there are two ways to minimize this effect: (1) do better than you think you can do and (2) learn how to not over-estimate your abilities in the first place.

The first way is probably easier for any ambitious person who already has a decent idea of what they want to accomplish and goals they want to achieve: just keep at it until it gets done.

But there are 2 important caveats here:

  • One of these goals may not actually be achievable . . . or at least, it wouldn’t be worth pursuing if it was because your performance would be too poor . . .
  • You could lose out on some opportunities because you don’t have the ability to realize them (no one said we were good at this). What’s more, building something from scratch takes time and energy; so if you aren’t able to get started soon enough, don’t expect any help from anyone else but yourself.

How the Dunning Kruger Effect Affects Managers

The Dunning Kruger effect is an economic phenomenon that describes the way in which people make decisions when faced with an uncertain future. It has two main causes: (1) Inability to accurately forecast future outcomes, and (2) inability to correctly attribute uncertainty to a specific cause.

We often see managers making poor decisions because they are not aware of their own ignorance. They assume that when they see a problem, they know exactly what the cause is and what the solution should be. However, most problems are due to lack of knowledge, not lack of ability to solve them. Here’s how it works:

A manager makes a decision based on information available today while ignoring information available tomorrow. The manager assumes that all past performance can be used as a guide for her decision-making today, when in fact she is basing her decision on her own past performance. This makes future performance useless for decision-making because she doesn’t know how well she will perform tomorrow, so it can’t be used as a guide for today’s decisions.

The Dunning Kruger effect is illustrated by the following example:
The manager decides at work that it would be a good idea to hire more employees; however, she lacks any evidence as to whether this would actually help her company or not. She suspects that if there was more hiring she would do even better than before (which is true), but does not have any data as to whether this would actually happen or not (which isn’t). Thus, she makes the wrong hire!

The Limits of Expertise

We all know the phenomenon of the Dunning Kruger effect: we have “expertise” (our own expertise) and we don’t recognize it because it doesn’t match up with our experience. We know how to do something, and when we see another person doing it, we assume that’s what they are doing. It can be a useful thing to find out how to accomplish things that you think you can do well, but it is not a good way of learning what other people actually do. For example, I often hear people say they know they should pay off debt (or at least not pay off more than they owe), but then they have no idea how to go about setting up a payment plan. Other examples would include getting your credit score above 700 or your mortgage below the threshold for a cosigner (which will help with your credit score if it gets high enough).
The problem is that many of us think those things are easy to accomplish; we just don’t know how because we don’t have any prior experience with them. The result is that even if people tell us what to do, we still want to believe there is some magic trick behind it and expect an easy solution for doing so.

Conclusion

The Dunning Kruger effect (also known as the “self-fulfilling prophecy”) is the idea that we often overestimate our ability to succeed: people who are successful estimate their odds of success at higher levels than they actually are.

The Dunning-Kruger Effect is a psychological phenomenon where individuals who lack expertise demonstrate cognitive biases, making them overestimate their abilities. These biases can lead to poor decisions and low performance; in the case of entrepreneurship, it can lead to failure. This post argues that this applies to entrepreneurship and that the best approach for launching a company is not to learn everything you need to know before you start.

Rather, you should take a pragmatic approach, learning how things work along the way by doing hands-on projects with your team or by taking classes on subjects such as sales, marketing, or finance. The goal is not to be an expert in everything but rather a (mostly) naïve amateur — one who can learn enough about what works and what doesn’t work for launching a product or service.

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