H@H: Ep 18 – On this episode, hosts Paulina & Ray talk with Don Moore, the Lorraine Tyson Mitchell professor of Management of Organizations at Haas and a professor of the Leading People core course for 1st year full-time MBA students. We delve into Don’s new book, Perfectly Confident, where he tells us about the 3 forms of overconfidence (9:42), if confidence really improves performance (10:36), and what to do if you have imposter syndrome (17:30). Don also shares a few personal stories, including why he turned down a sure-fire job with a former professor (27:51). Finally, we end with practical tips (40:53) on how to correctly calibrate your own confidence.
Notable Quotes:
“Confidence without attitude is most effective when it’s backed up by ability.“
On how to identify overconfidence in others: “I would say, ask for clear evidence. Evidence that’s hard to fake; evidence of real performance: numerical, disprovable, claims of confidence.“
“The way to handle imposter syndrome is to get better information about the struggles that others are dealing with.“
On the dangers of being results-oriented: “If being results oriented means that you reward success and punish failure, that’s dangerous because you will reward the lucky and punish the unlucky.“
Show References:
- Don Moore – Haas profile
- Perfectly Confident
- Tony Robbins’ Unleash the Power Within
- The Confidence Code
- Annie Duke – Thinking in Bets
Transcript
[00:00:02] Paulina Lee: Welcome to here at Haas, the podcast, connecting you to students across all MBA programs and the faculty that change our lives. Today on the show I’m co-hosting with my fellow Haasie Ray Guan, and we’re very excited to welcome our guests to the show today, Don Moore, a professor at Haas who has done extensive research in confidence and as the author of Perfectly Competent.
[00:00:25] Welcome to the show, Don.
[00:00:27] Don Moore: Thanks so much. It’s great to be with you.
[00:00:29] Paulina Lee: How’s your day going so far?
[00:00:31] Don Moore: It’s going pretty well. I haven’t made any huge decision errors of overconfidence yet, but the day’s not quite over, so we’ll see how it goes.
[00:00:39] Ray Guan: So, Don, can you just give us a little bit about your background? Most of our listeners are current or prospective MBA students. So, just let us know and let them know how you came to teach here at Haas.
[00:00:53] Don Moore: Yeah. I was an undergraduate psychology major and took economics my junior year. It inspired me the thought that I might be a budding business person. So, I took a corporate job when I graduated college. And it got me fascinated with all the circumstances of the workplace, the organizational dynamics and how the company made decisions. That sent me back to graduate school, where I studied organizational behavior with, Max Bazerman.
[00:01:25] And, when I graduated, I had my heart set on a job at Hoff. I got an interview, but no offer then. Hoff Broke my heart. Haas has long been my dream job. The school made it up to me in 2010 when I moved here and have been happy as a clam ever since. I thank my lucky stars that I get to be able to work here.
[00:01:49] Paulina Lee: That’s amazing. And so, as I think about when we’re young and we’re growing up and we all have these ideas in our heads of who we want to be, when we grow up, at what point did you say to yourself, I’m going to build my expertise and research in confidence.
[00:02:08] Don Moore: I wound up on this past through complicated and winding road. I would trace its origins to my youthful fascination with confidence, self-help, self-improvement. I was a connoisseur of all sorts of different self-empowerment and self-help books. And it was in those young days that I became familiar first with the work of a guy named Tony Robbins.
[00:02:40] So when some years later I got an invitation to teach with him, I was thrilled. That was really fun. And that then wound up leading me to one of his workshops, an event called Unleash the Power Within that he runs with some frequency often in enormous convention centers with tens of thousands of people in attendance.
[00:03:05] Because I had taught with him, I wound up upfront in the VIP section for a front row view of the goings-on including the big event that has become synonymous with the Unleash the Power Within weekend and that is the firewalk that ends the first day. And it was a fascinating confidence laboratory where Robin’s got the whole crowd whipped up into a furious lather of excitement, giving us the courage to walk through fire and inspire us to overcome our greatest fears.
[00:03:45] And he did such a good job with me. I bought it hook, line and sinker that when I charged eagerly over those hot coals, I let it slip my mind that he had cautioned us to take various safety measures. So, at the end, these coals do actually stick to the bottom of your feet and you gotta diligently wipe them off.
[00:04:08] And there were members of the Los Angeles fire department on hand to spray our feet with hoses. And I should have let them do that a few seconds longer because I realized afterwards that I had burned my feet quite unfortunately. I was in a great deal of pain later that night and I just felt like such an idiot.
[00:04:30] I had gotten so carried away with the excited fervor of the moment that I had sort of fooled myself into these giddy feelings of confidence that were pleasurable in the moment, but had these obvious long-term costs that made me do this dumb thing that was so easily preventable, that Robbins had cautioned us against.
[00:04:53] And it was experiences like that, that fed my research interests and understanding the roles that confidence plays in our lives. The ways that it can be helpful and the ways that it can be harmful. Obviously, there’s a tight connection there to Haas culture and confidence without attitude. So, the ability to do this work and teach at Haas feels like a perfect fit for me. I have to say.
[00:05:20] Ray Guan: That is such a fascinating story. I’m sure that sticks with you, not just the pain, but the memories. And that’s something that you can tell really at any party or networking event.
[00:05:34] Don Moore: Or that my wife will tell for me at parties when she’s trying to embarrass me.
[00:05:41] Did that inspire you to write a book? You kind of went to pretty great lengths after the event happened until now when the book launched about a month ago. Can you tell us what kind of inspired you to write Perfectly Confident?
[00:05:56] Don Moore: Yeah, Perfectly Confident is the result of a long scholarly and research path that began with my dissertation, where the most curious result from my dissertation was this sort of odd outcome in which I found that all my research participants were telling me that they all thought they were worse than others. And, in figuring out why that happened and then trying to reconcile that result with this large body of literature that suggested that people were overconfident about most things most of the time, I wound up going down this deep rabbit hole on the study of confidence. And that has been my research obsession for the last 20 years after spending so much of my life investigating this one topic, I felt like I had a message worth sharing. And that really is the intellectual origin of the book.
[00:06:53] Paulina Lee: How long did it take you to write the book? When did you first come up with the idea and then to publishing and putting it out last month?
[00:07:02] Don Moore: The story, like I said, traces back to my dissertation. Now I hadn’t really thought of turning that into a book until I got an invitation to lunch from an agent, a literary agent named Max Brockman, the son of John Brockman who’s one of the most high-profile literary agents for researchers in academics and eggheads like me and. So, I was flattered. At lunch, he asked me, have you ever thought about writing a book? And my answer was, well now I have. And I got to work, trying to think about how that might happen now.
[00:07:37] Truth be told, this was like 10 years ago. By the time I got together a book proposal sent to Max Brockman was a few years later. What I sent him, I guess wasn’t exactly what he’d imagined. And so, he said, Man, I don’t think so. I’ve never less pursued it given my obsession with the topic and found my way to an editor who thought the idea was interesting, but I didn’t wind up having enough faith in the project to pursue it back then. Some years later that agent, woman named Margo Fleming, wound up at a literary agency run by Max and John Brockman. She called me up and said, Hey, you ever think about picking up that overconfidence project? And it was her encouragement that got me to pursue it again. It turns out having an agent representing you in the process makes all the difference for publishers paying attention. So when, with Margo backing me and advising me, that got the folks at Harper Collins interested, and we signed a contract in early 2018 with delivery late 2019.
[00:08:50] And the book’s been in process since then.
[00:08:53] Paulina Lee: Wow, that’s a great story. I mean, I heard strangely enough, randomly on my meditation at this morning, they talked about JK Rowling and how it took her, you know, six plus years to write Harry Potter. So, you’re right up there with he. Just as an interesting story.
[00:09:08] Don Moore: That is one of those confidence stories that gets told and retold about the confidence that JK Rowling had in her idea to keep pursuing it, keep pushing it, keep trying, keep seeking publishers, even when she kept on getting rejected and denied and told no over and over and over.
[00:09:25] Paulina Lee: Totally. And I know we could all easily, you know, Google the definition of confidence and what it means, but if you had to explain confidence, what does it mean to you? Or how would you explain it?
[00:09:37] Don Moore: When I think about what confidence is, I think about the ways that scholars have studied it. One type of confidence is estimation. How good do you think you are? How capable do you think you are? How likely do you think it is that you will succeed? And overestimation would be the exaggerated estimation of these abilities or potentials. Over-placement is the exaggerated belief that you’re better than others.
[00:10:04] And the third variety of overconfidence is what I’ve called over-precision. It’s excessive faith in the accuracy of your information or excessive faith that you know the truth.
[00:10:17] Ray Guan: We’re here at Haas and there are a bunch of classes that teach maybe not confidence directly, but in some shape or another like power and politics, I think negotiations, there are a lot of classes here at Haas that work on perfecting, where at least improving our soft skills.
[00:10:36] In the book I think you write that you’re skeptical that confidence improves performance. Can you elaborate on that?
[00:10:45] Don Moore: Yeah, thank you for that invitation. And I am keenly aware that the message I deliver to moderate and calibrate your confidence runs the risk of potentially being at odds with some of the messages that my beloved colleagues at Haas are delivering. Cort Worthington and Cameron Anderson and I have had a number of extended conversations. Cameron and I are coauthors on a paper showing how the expression of confidence can get you status in groups or credibility with others. We’ve also shown how being exposed as overconfident can undermine your credibility and expose you as a poser or a fraud. So, confidence without attitude is most effective when it’s backed up by ability.
[00:11:36] So your question really gets at a couple interesting ways in which confidence could benefit you. The first I want to explore by relating a study that I did with Liz Tenney when she was a postdoc at Haas and Jennifer Log when she was a PhD student. So, the three of us have a paper that began with the intention to identify when confidence helps performance.
[00:12:06] We started by asking a bunch of people under what circumstances do you think confidence is most likely to help your performance? And they listed a bunch of tasks and performance domains that they thought confidence would help with. And they included all sorts of things, including performance on tests or athletic tasks, boring, physical endurance sorts of things.
[00:12:28] We tried to devise tests in the lab that would allow us to examine their beliefs. What’s worth noting here is that we go through life observing strong correlations between confidence and performance. It’s possible that those correlations are because the confidence actually helps people perform better.
[00:12:50] But part of it is also the fact that if people have a sense of how capable they are or how talented they are or how much practice they’ve gotten or how much they’ve rehearsed, then that ability could lead to both confidence and actual performance. So, what we needed in order to distinguish the causal role of confidence per se was an experiment where we manipulated it.
[00:13:16] It wasn’t good enough to just measure the people’s native confidence and see whether that correlate, because that could have been all driven by their knowledge of their own abilities. And we expected the confidence to have a beneficial role. And we began as I recall with a math test where we had some participants that everybody took like a pretest and then some of the participants we told, yeah, you didn’t do so well on that.
[00:13:42] We don’t expect you to perform well on the test. Other people we told, Whoa, you hit it out of the park. You should really expect to do well on the real math test. And then there was a third group to whom we explained the whole setup. We said, okay, we took a bunch of people. Give them this pretest. Led them to expect to either do well or to do poorly.
[00:14:05] We gave them a lot of confidence or not much confidence regarding their performance on the math test. Estimate each group scores on the test, and tell us how much you want to bet on the accuracy of your predictions. Those observers were ready to bet on the optimist doing better. The optimists were ready to bet on themselves doing better. And the pessimists, they came in with low expectations. They did not expect to do well. To our astonishment we found no difference between the optimist and the pessimist in their actual performance. So that got us worrying. Well, maybe the math wasn’t the best opportunity for the optimist to shine.
[00:14:49] So we ran a similar study with a trivia quiz. No difference. Their athletic performance, no difference there. A physical endurance task where they had to squeeze a hand dynamometer for as long as possible, and no difference there. In each one, the observers were ready to bet on the optimist and the optimist really reported believing in themselves, but we just couldn’t find an effect on actual performance.
[00:15:16] So that reduced my confidence in the beneficial performance enhancements of confidence. But I will say that my research with Cameron Anderson and Jessica Kennedy and Sebastian Brown, graduates of our doctoral program at Haas, along with Liz Tenney, who I mentioned earlier, do identify the ways in which the expression of confidence can gain you credibility in a social setting and also how that is most likely to play out to your benefit and how it can get you into trouble. So, if you claim you’re working on a group project, and if you say I’m a hundred percent sure I know how to do this, listen, everybody should follow my instructions. If you’re not right about that, you stand the risk of looking like a real buffoon.
[00:16:12] On the other hand, there are ways that people express confidence and you’ve seen your fellow Haasies do this. Sometimes speaking louder, speaking first, interrupting others, that exhibit confidence without making a falsifiable claim. And that’s sort of confidence expression is less likely to get you into trouble.
[00:16:33] So as it would be leader that might make you think, ah, that’s the sort of confidence I should express. And as a potential follower or voter it should make you think, I don’t want to let myself be fooled by an overconfident poser who just talks louder and makes all sorts of vague claims without actually providing any sort of falsifiable evidence I can use to assess their potential or performance.
[00:17:06] And so to those listening, wondering how to use these lessons to better identify overconfidence and others, I would say, ask for clear evidence. Evidence that’s hard to fake. Evidence of real performance. Numerical, disprovable, claims of confidence.
[00:17:27] Paulina Lee: You know, I felt this when I first showed up on campus, this feeling of an imposter syndrome. How should we think about an imposter syndrome and that balance between almost that fake it till you make it?
[00:17:39] Like, I deserve to be here. I got in here, I’m here on admissions day, but also this feeling of, I can’t let anyone find out.
[00:17:49] Don Moore: You are an excellent company. Lots of Haasies show up and feel that imposter syndrome. You know when that happens, that happens to people when they’re doing something hard and they don’t know how others have struggled with the same challenges. In my leading people class, I survey the students and ask them to give themselves a percentile rank relative to others in class. When I ask them to rank themselves relative to their classmates, in their knowledge of Latin or their ability to ride a unicycle or how many companies they’ll found in their lifetimes, on average my students think that they’re worse than average, relative to their classmates. So, to take the juggling or unicycle riding example, like these are things that most of the students in my class think, I can’t do that. I know I’m terrible. Maybe someone else out there knows how to do it. Maybe someone in the class had, you know, a previous career in Cirque du Soleil. So, I must be below average. That’s when you get the imposter syndrome. It’s hard for everybody, nobody’s good at it. When you show up to Haas, like the first exam that I give in my class after people have been out of school for five years, everybody’s freaked out about it and everybody’s sure they’re going to do badly on it.
[00:19:17] Well, the median is still going to be at the 50th percentile. Right? The way to handle the imposter syndrome is to get better information about the struggles that others are dealing with in sometimes that means talking to people who’ve survived those struggles. Talk to second years about their self-doubts, fall, semester, first year.
[00:19:46] When it comes to your job post Haas, there’s a good chance you’re going to be thrown in the deep end and you’ll be struggling with challenges that you wonder if you’re up for. Well, talk to your mentors, talk to more senior people in the organization. Good chance many of them suffered the exact same challenges and self-doubts that you are.
[00:20:04] Ray Guan: I mean, this is a pretty standard question where you pull a group of a hundred people or X number of people.
[00:20:11] How good of a driver are you compared to average? And everyone, I think like the average percentile is like 79% or something because it’s a task that maybe it’s not “easy”, but it’s a task that everyone does regularly, right?
[00:20:27] So, people feel with easier tasks, they are better than average. When in a sense, you just don’t really know the general population.
[00:20:37] Don Moore: Yeah, we all know our own driving abilities better than others. There are a few maniacs out there who get an accident, and wind up in the hospital, thanks to their bad driving abilities. And we think, well, I’m not one of those. So, I guess I’m better than average. Although I have to say that the question on which I get the highest percentile rankings from my Haas students is honesty. Honesty is an interesting one because most of us know that we’re honest about most things most of the time. But it’s hard to know for sure with others, right? Because we don’t know what they believe and whether they’re saying what they believe. And so, it’s easy to imagine that we’re more honest than others just because we lack information about other’s private beliefs.
[00:21:18] Ray Guan: I just want to say with that though, Don, I feel like you’re also looking at a subset of Haas students who got into Haas. So maybe we are better than average or more honest than average.
[00:21:28] Don Moore: Yeah. But not more honest than their classmates.
[00:21:32] Ray Guan: Sure. Okay. So, I want to back up and ask you about confidence and overconfidence.
[00:21:39] Did you find any differences by gender or race or just other demographic variables or which variables does confidence vary a lot with?
[00:21:51] Don Moore: That’s a great question. I’ve searched for individual differences, correlates. So, are men more of a confidence than women? There have been some fairly grandiose claims made about gender differences in confidence. There’s a book, The Confidence Code and a number of people have written about it. There are a few findings implying male over-placement in the literature.
[00:22:15] I have to confess that I get those results in my lab only occasionally and inconsistently. And what’s striking about both the gender difference and the culture difference. So, I have done some research at trying to identify cultural differences in confidence expression and there are some, but they’re complicated and they don’t map on the stereotypes very neatly.
[00:22:38] So for instance, the gender difference, the stereotype holds that men are more certain in their knowledge, they pretend like they know what’s going on. That’s where mansplaining comes from and why in the days before our phones saved us, that men refuse to ask for directions. But that would imply male over-precision.
[00:22:57] And I know of no credible published claims of male over-precision. Sometimes male over-placement, but no evidence of male over-estimation. So, the findings on individual differences between groups are weak and are not all that consistent with stereotypes. On the other hand, the situational effects on confidence and confidence expression are huge.
[00:23:20] So, like we were just talking about most of the students in my class think they’re better drivers than their classmates. And most of the students in my class think that they’re worst jugglers than their classmates. That’s true for both men and women and people of all sorts of different cultural backgrounds.
[00:23:36] Paulina Lee: As we think about students in the classroom, you are doing a lot of research in and outside of the classroom and bringing that to your students and almost doing research on your students.
[00:23:47] Don Moore: Yeah. My students worry a lot that they might be guinea pigs in my study. That concern is way overblown. So, there’s much discussion of experimentation in my class. For it to be an experiment, I have to be randomly assigning people to conditions. And in my classes, I’m really doing it.
[00:24:07] Usually their pedagogical demonstrations, where there’s some experimental scenario that I’ve studied that I think is so interesting and so enlightening that I bring it to class, but I’m not planning on publishing the results from my class.
[00:24:21] Paulina Lee: Good to know for Ray and I in the future. What do you think are some experiments or exercises that students or people in the workforce can do to really understand where is their confidence level? How do they calibrate that? And then how do they get a better sense of the people around them?
[00:24:39] Don Moore: Oh, what a good question. Yeah. In the book, I encourage people to discipline their own confidence and the confidence of those around them by asking a question that poker players, professional poker players ask each other routinely. That’s a question that’s explored in delightful detail in this book by a professional poker player named Annie Duke.
[00:25:04] The book is called Thinking in Bets. And the question that poker players ask each other is, wanna bet? When someone makes some claim that seems a little bit exaggerated or grandiose, their buddies will ask, Oh yeah, wanna bet? And asking others that question, wanna bet and asking yourself that question even if your friends aren’t challenging you or your colleagues aren’t challenging you that way can be really useful in helping you discipline your confidence in your beliefs. So, you think you know what’s going to happen. You’re pretty sure you’re going to get an A in the class. How sure are you? Is it 90% likely?
[00:25:52] Is it 80% likely? How likely is each of the possible grades that you could get and what could you do to influence those outcomes? You think your entrepreneurial idea is worth betting your career on? How sure are you? Now, you may be tempted to claim maximum confidence when pitching to the VCs. But how sure are you really? Do you think it’s 99% likely that you’ll succeed?
[00:26:27] Well, if so, you should max out your credit cards and get everyone in your family because that’s a great investment.
[00:26:36] But when Jeff Bezos was pitching Amazon to investors early on, he said, I think there’s probably a 70% chance you’re going to lose all the money you give me. So, don’t invest into, unless you can afford to lose it.
[00:26:50] I don’t think you have to be delusionary overconfidence to succeed as an entrepreneur.
[00:26:53] Ray Guan: That’s a great example of how to calibrate. I mean, Bezos was basically calibrating the confidence of his investors in making sure he wasn’t trying to rip them off or just tell them lies.
[00:27:07] And that actually leads me to the next question. I’m going back on the whole wanna bet kind of principle. You almost made that with your mentor. I think you mentioned earlier, Max. You talk about in the book, how when you graduated, when you were about to graduate from your I think PhD program that you were worried about how you might graduate and not be able to find a job, which is a valid concern I feel like in this current economy we have.
[00:27:45] Don Moore: We’re talking about me.
[00:27:47] Ray Guan: Right. So, would you care to elaborate on that story?
[00:27:51] Don Moore: Yeah. Max used his bet, his proposition, to try to de bias my under-confidence. So, he thought I was being under-confident. When I was coming out of the PhD program at Kellogg, I was terrified of being unemployed. And so, I came to Max freaking out and said, what if I don’t get a job? He said, you’re probably going to get a job.
[00:28:20] I said, well, what if I don’t get a job? He said, listen, if you don’t get a job, I will promise to pay you the market prevailing wage next academic year and you can go out on the market again. It’ll just cost you a small insurance premium. He basically invited me to bet against myself, right? To bet that I wouldn’t get a job.
[00:28:48] What I said that I believed or the prospect that I was clearly weighing very heavily in my mind that I was so scared of. Well, he said the premium of what I would have to pay him was $5,000. Hmm. Okay. A nontrivial sum of money. What was the expected value of that bet? Well, how likely is it that I would have to collect?
[00:29:14] How likely was it that I wouldn’t get a job. I had to think hard about that. Max didn’t make a decision on the spot. I went away and thought about it. And the probability of me getting a job would have to be lower than 94.4% for Max’s insurance policy to have been a good deal and expected value terms.
[00:29:36] Ray Guan: And that was $90,000, right?
[00:29:38] Don Moore: $90,000 was the prevailing wage for starting assistant professors back when I was coming out of the market in 2000. And, I decided that I should decline Max’s back. And when I told him, no, thank you. He smiled with satisfaction and said, see, you also think you’re going to get a job. And I couldn’t disagree.
[00:30:02] Ray Guan: That’s funny cause I actually work in insurance and earlier in my career, I used to price insurance and I’ve never thought about it the way that you just verbalized it. If you don’t believe bad things are going to happen to you, then don’t buy insurance.
[00:30:20] Which I think in some cases it might be, you know, if you’re talking about travel insurance or maybe a smaller time period. I guess what I’m trying to say is I’m glad that there are laws in place that mandate certain types of insurance.
[00:30:35] Paulina Lee: Ray’s making a pitch that you should buy insurance or the other, maybe not against yourself and getting a job.
[00:30:43] Don Moore: Do you offer job insurance like that, Ray?
[00:30:47] Ray Guan: Definitely not the company I work for because I work in personal lines, but there are probably some specialized insurance, like there’s worker’s comp, right? And that’s where when you get injured physically.
[00:30:57] Don Moore: Employer on their employees.
[00:31:00] Ray Guan: Right. It would just be, I don’t know. That’s actually a great question and potentially a great product who knows if some listener can pick this up and carry it forward to Skydeck or Launch, that would be great.
[00:31:11] Don Moore: Yeah. Every insurance policy entails a bet on the future. And when you take out insurance to protect yourself against loss, you’re betting that things will go badly for you, that you will endure a loss and you’ll need this insurance to cover you. And the book I explore the curious constellation of risk preferences that would justify someone both wanting to buy insurance and being willing to gamble.
[00:31:37] One implying risk aversion, the other implying risk seeking, and it gets into some funky territory of human bias and the weird ways that we think about risk. I think that the advice I offered to discipline your own confidence judgments by thinking about probabilities rigorously writing down your probability forecasts for yourself and for the outcomes that matter in your life.
[00:32:03] And then following up later to ask were you right? Are you well calibrated? Do the things that you say are going to happen on 50% probability? Do they happen about half the time? And, tracking your own feelings about likelihood and probability in order to better map them to numerical estimates of probability is so useful because it allows you to make expected value calculations, which are crucial to wise decision making if you’re going to attempt any sort of systematic analysis of risk or comparison of risky options.
[00:32:41] Paulina Lee: That’s a great exercise to do. I feel like I would struggle with keeping track of all the numbers, but it’d be such an interesting thing to go back and say, I thought I was going to do this and I succeeded or I didn’t. And it’s such a great reflection.
[00:32:57] Ray Guan: Last night we had a call with the team and I was telling the group about the confidence interval exercises that you have in your book and Paulina was sharing with us like, Oh man, this is such a struggle. I feel like I have no idea. And I was like, that’s kind of the point, because if you have a 90% confidence interval, you need to be like, really, it has to be a really why interval. Either that or you’re just, you’re really sure about some of the questions.
[00:33:26] Don Moore: Yeah. It’s those sorts of probabilistic forecasts there at the heart of every big decision a company makes. So how many widgets are you going to produce next quarter? How much office space are you going to rent? How many people do you need to hire? Those crucial decisions depend on forecast of what business looks like three months, six months, nine months down the line, and they entail risk.
[00:33:56] And they’re asymmetric penalties to error. Sometimes producing too much, it’s not a big deal. You got plenty of warehouse space. You can just stock it and sell it the following quarter. Other times, overproduction is a disaster, right? If you’re short on resources and your product spoils quickly, then you don’t want to overproduce.
[00:34:19] And so thinking carefully about the distribution of possible outcomes is essential to making wise decisions. And few companies do that well. The most common way companies forecast is with a point estimate and then they treat it as if that’s a hundred percent likely. Like they know for certain exactly how many units they’re going to sell next quarter.
[00:34:38] Well, that’s crazy.
[00:34:40] Paulina Lee: In these certain situations, how does overconfidence come into play in the workplace? Whether you’re having an overconfident leader or overconfidence among the whole group.
[00:34:52] Don Moore: The form of overconfidence that’s most likely to play out in organizations is over precision. People being too sure that they know the truth, that they know what’s going to happen, that they know the right path forward. And this can create friction within the workplace when people who disagree think that the challenge is to persuade those who disagree with them or maybe even defeat them in some sort of political contest for influence.
[00:35:26] In the book I argue for the benefits especially within organizations of capitalizing on the wisdom of the crowd and trying to figure out the best pieces of each person’s perspectives, identifying the nub of the disagreement. Often that is the number that disagreement is very small and can be boiled down to a bet on some future state of the world that you can test. And, that’s one way to take disagreements and turn them into bets that enlightened and that can be positive in expectation for all the parties involved, right? So, if there are a couple of people on a team who disagree about what sales are going to be next quarter, allowing each one to bet on what they think is going to happen.
[00:36:19] Each that’s a positive, expected value bet for each of the people who disagree and that can allow them and the organization to hedge on the risk that is at the center of their disagreement. That sort of process can be very enlightening for figuring out, okay, what’s the truth and what are the people who disagree with me know that I don’t know?
[00:36:40] What does that suggest about how I might want to revise my opinion?
[00:36:44] Ray Guan: Right. So, creating win-win situations as you were mentioning versus, okay, it’s a competition. Like it’s an I win you lose perspective, which is typically not good at least for one party and probably unhealthy for multiple parties or all parties.
[00:37:01] Don Moore: Yeah. There’s some organizations that have tried to inculcate this culture of respectful disagreement. I think Amazon has done an okay job at that and it has helped them cultivate good ideas within. Bridgewater Capital or Bridgewater Associates, the hedge fund, is another organization whose leader has been very vociferous in talking about the culture of the idea of meritocracy that Bridgewater attempts to inculcate. It’s a noble goal that they’ve made a lot of progress toward. It’s not perfect, but no organization is.
[00:37:38] Ray Guan: So, then Don, what’s I guess the downside to appointing a leader who’s just a little bit overconfident?
[00:37:47] Don Moore: So, the white house is producing lots and lots of examples for me these days. I don’t feel very good about it, but having a leader who is overconfident about the risks that the coronavirus presents for the country has meant that we found ourselves ill prepared for the pandemic when it hit with catastrophic consequences to human health and to our economy. Overconfident leaders can get their companies into all sorts of trouble by failing to insure themselves against foreseeable risks, by taking sanctimonious stances on moral issues that will come back to bite them, by presenting themselves as paragons when in fact they are highly flawed, and by undertaking ventures that will fail.
[00:38:47] Paulina Lee: I’m also curious in your time teaching at Haas. Do you have any student stories from the classroom or from your research with your team where you’ve seen real-time confidence or overconfidence?
[00:39:06] Don Moore: Class discussion is an area in which the most confident are most eager to speak out and will most stridently present their views. As an instructor I struggle with the most tactful response to the student who’s sure of their perspective in a way that will allow them to learn.
[00:39:38] Right. So, I could just make fun of them and make them an example that the rest of the class will remember. That student, however, if they feel disrespected, they will respond with anger and not with self-reflection. So, handling that situation as an instructor, diplomatically is a real challenge. I can’t say that I’m perfect at it, but one tool that I attempt to use is to open up a discussion in which I invite others in the class to weigh in. Because I think that classmates can often be better at inviting students to consider other perspectives than the instructor can. I’m more likely to produce a defensive response than are disagreements from classmates. And that open debate in the class when it can be respectful but direct can be a really useful way to enlighten the topic of discussion and potentially change minds.
[00:40:54] Ray Guan: OK, Don, so, for our listeners today, what are some practical tips or things to keep in mind while implementing some of the exercises you suggest?
[00:41:51] Don Moore: Encouraging yourself to think probabilistically about the uncertainties at the heart of key decisions is very useful. Keeping track and keeping score is very useful for yourself and for those who work with you. So, in the book, I talk a little bit about the dangers of being a results-oriented manager. Lots of people and companies brag about being results-oriented. And if being results-oriented means that you reward success and punish failure, that’s dangerous because you will reward the lucky and punish the unlucky. You can do better than that as a manager. If you reward wise decision making, which would include well-intentioned failure.
[00:41:51] Don Moore: I give the example of a risky project, like the development of the iPhone, which costs Apple hundreds of millions of dollars and was far from guaranteed to be a success. They got lots of ridicule at the time. It followed not that long on the heels of the Newton, the first personal digital assistant, which was a catastrophic commercial failure.
[00:42:15] It was widely lampooned, doesn’t it and overpriced digital notepad. A lot of the technology from the Newton found its way into the iPhone. But if you’ve got some new innovation that is most likely to fail, say it’s got a 90% chance of failure, but what’s the upside. If success means 101 pay-off, that’s got a positive expected value.
[00:42:39] You should want the people at your company to take that bet every day. Every time such an opportunity comes along, embrace it wholeheartedly. Do everything you can to increase the probability of success from that 10%. But you should take it even if you can’t increase the probability of success. So, you should think about the expected value of your choices and document their expected value at the time you make them. That’s helpful later, because 90% of the time you’re going to have to explain to your boss why you invested a hundred million dollars on this product that just bombed in the marketplace. If you got this analysis that you put together and shared with your boss before you undertook the investment, noting this will probably fail. But if it succeeds, it could succeed in a gigantic way.
[00:43:34] That will help you think more sensibly about the risks and the probabilities involved after the fact and be somewhat less likely to fall victim to the hindsight bias where you look at what happened and think that it was inevitable. Well, it wasn’t.
[00:43:50] Paulina Lee: Those are great tips. I know for me, it’s especially timely because our fiscal year ends in June. So, July is when I start to build my next yearly forecast and my plans for the year. So, I will definitely be taking that into account.
[00:44:06] Don Moore: Let me offer one more follow-up tip. So, what you’re doing in developing forecast for the next fiscal year, super important. And inviting those who report to you to give you their forecast and then following up with them can be so helpful for you helping to improve your understanding of them and helping them calibrate their confidence going forward.
[00:44:32] Paulina Lee: That’s a great ad. And so now that you’ve launched the book, I’m sure you have plenty of free time on your hands. I’d love for you to share just kind of what you’re working on for the summer, for this fall, or what you have in the docket for the rest of 2020.
[00:44:47] Don Moore: I must confess that I have gotten myself involved in another book project.
[00:44:53] So, Max who invited me to bet that I wouldn’t get a job, he persuaded me that we should work on a book together on leadership and the lessons for leaders that come out of the decision making and behavioral economics literature.
[00:45:11] Paulina Lee: That’s exciting. When can we expect that?
[00:45:12] Don Moore: Ha! Don’t hold your breath.
[00:45:18] Ray Guan: I like how you spun it from a win-loss. When you made the bet with him or the potential bet to now it’s like a win-win. You guys are on the same team.
[00:45:25] Don Moore: Exactly. Exactly. Yep.
[00:45:28] Ray Guan: Are you teaching any classes this summer or this fall?
[00:45:31] Don Moore: I’m teaching my great love, the Leading People core class. I’m teaching blue and gold in the fall for the full-time program. And I am teaching in an executive program on executive decision making. It looks like that’s probably going to be running online. So, anyone who wants more of my lessons on decision making should feel free to sign up. We’d love to have to have you be a part of it.
[00:45:55] Ray Guan: Before we leave, we want to give you an opportunity to plug your book and any other resources or articles that you’ve written.
[00:46:04] Don Moore: Thank you. I will take you up on that invitation. The book is called Perfectly Confident. Check out the website, perfectlyconfident.com. There are links to buy the book in paper or audio book format, also links to my blog and my other work on the subject, including the confidence interval exercises and other tools for helping people calibrate their confidence.
[00:46:27] Ray Guan: Thank you so much for coming on today, Don.
[00:46:29] Don Moore: This is really fun. Thanks for giving me the chance.