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Managing Overconfidence
By J. Edward Russo and Paul J. H. Schoemaker
Winter 1992
Reprint 3321
Volume 33, Number 2, pages 7-17, 11 pages
Primary Topic: Corporate Strategy
Secondary Topic: Human Resources

Summary

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.

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