The 2-Minute Thought: Why Do We Think We’re So Right When We’re So Wrong?

Please note that The 2-Minute Thought will be on holiday for 2 weeks and will resume July 7.

Consider these poll results recently cited in The Economist:

  • Americans think 33% of the population are immigrants – the actual number is 14%.
  • Britons think 24% of their population is Muslim – the actual number is 5%.
  • 26% of Britons picked foreign aid as the top area of government spending – foreign aid is just 1% of spending and a small fraction of pension and education spending.
  • Americans guessed that 24% of teenage girls get pregnant each year – the right number is 3%.
  • 77% of Americans said they were confident about being prepared for retirement, but only 63% said they had saved any money for it.

Wrongness isn’t the scariest thing here.  The scary thing is how often people insist they’re right even when shown evidence to the contrary. 

According to The Economist, when Britons were asked why they overestimated the percentage of immigrants, there were two common responses:

1)  Some people said the government was wrong because it wasn’t counting all the illegal immigrants.

2)  Some people just insisted they were right anyway, in spite of the evidence.

How does this happen? 

Remember Mark Twain saying, “It’s not what you don’t know that gets you into trouble.  It’s what you know for sure that just ain’t so”? 

We are a mountain of cognitive biases built on top of each other.  We overweight the first piece of information we hear (anchoring).  Or sometimes, we overemphasize the latest information we’ve heard (recency bias).  We cling on to information that confirms our opinion and discount information that counters it (confirmation bias).  Once we make a choice, we convince ourselves that it was a good one even if it was flawed (choice-supportive bias).  We herd, meaning we’re more likely to believe something if a greater number of people already believe it (bandwagon effect)

My own personal favorite:  We overrate our own abilities in all spheres of life (overconfidence).  Most of us, if asked, will say we’re better drivers than average, better portfolio managers than average, even better dancers than average.  Did you know that 86% of Harvard business school students said they were better looking than their classmates?  Those numbers just don’t work out. 

One of the points of The Economist article is that politicians and public officials face a mighty tough task when dealing with misperceptions that are so widespread and stubbornly held.  My point is that we can never be reminded enough of how flawed our thinking can be. 

We so often fall in love with stocks and hobbies and people that turn out to be all wrong because we are biased.  The new hire we thought was the answer to all prayers turns out to be a nightmare.  The stock we thought was so undervalued turns out to be grossly overvalued.   How is it that so much smart money ended up so heavily invested in Valeant?  How is it that Theranos got as far as it did?

We can never be reminded enough.

Please note that The 2-Minute Thought will be on holiday for 2 weeks and will resume July 7.