Managing Overconfidence

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Good decision making required more than knowledge of facts, concepts, and relationships. It also requires metaknowledge — an understanding of the limits of our knowledge. Unfortunately, we tend to have a deeply rooted overconfidence in our beliefs and judgments. Because metaknowledge is not recognized or rewarded in practice, nor instilled during formal education, overconfidence has remained a hidden flaw in managerial decision making. This paper examines the costs, causes, and remedies for overconfidence. It also acknowledges that, although overconfidence distorts decision making, it can serve a purpose during decision implementation.

J. Edward Russo is Professor of Marketing and Behavioral Science at the Johnson Graduate School of Management, Cornell University. Paul J. H. Schoemaker is Associate Professor of Strategy at the Graduate School of Business, the University of Chicago. They recently published a book on managerial decision making, "Decision Traps" (Simon and Schuster, 1990).

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