Recent research from HEC Paris examines the impact of overconfident behavior on decision-making in both personal and business contexts. The study unveils that our own approach to uncertainty significantly influences how we evaluate our abilities.

Through a series of experiments involving more than 400 participants, the researchers found that attitudes towards ambiguity (uncertain events) play a crucial role in self-assessment decisions. When individuals feel confident in handling unknown situations, they tend to be overly optimistic about their abilities, leading to overconfident behavior, commonly referred to as “betting on oneself.”

Betting on ourselves

The experiments included a reasoning test assessing performance, beliefs, and attitudes toward ambiguity. Surprisingly, 83% of decisions were rooted in an excessively optimistic evaluation of participants’ attitudes, shaped by their beliefs and an overestimation of probabilities. This has practical implications, especially in areas like business and entrepreneurship.

The study breaks down responses to uncertain scenarios, providing insights into how people navigate ambiguity in decision-making. Experimental tasks probed participants’ beliefs, offering new perspectives on the link between subjective probabilities and actual performance.

Employing diverse academic backgrounds, the methodology explored attitudes toward performance and overconfidence. Rigorous testing and subjective assessments of abilities and beliefs about uncertain outcomes uncovered intriguing patterns of ambiguity-seeking behavior and instances of underconfidence. This research marks a significant stride in comprehending human decision-making, carrying implications for fields ranging from psychology to economics.

“Our research has implications for real contexts. For example, a CEO who is considering the acquisition of another business is faced with ambiguity and uncertainty,” the researchers conclude.

“This also applies to people who have taken out a large bank loan and must pay it back after a set time, because you are betting on yourself that you will pay it back. These examples may lead to people overestimating their own skills and failing to meet their obligations because of this overconfidence and optimistic attitude.”