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How to be Perfectly Confident Without Fooling Yourself with Dr. Don Moore

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In this interview, we share how you can finally make decisions with perfect confidence. We share what to do when you’re stuck in inaction and lack confidence in your decisions, and how to avoid being overconfident and making big mistakes with our guest Dr. Don Moore.

Dr. Don Moore is a professor at the Berkeley Haas School of Business, formerly at Carnegie Mellon. He is an expert in psychology with his main research focus on overconfidence. Don's research has appeared in popular press outlets and academic journals, including the New Yorker, the Wall Street Journal, NPR, the Journal of Personality and Social Psychology, Experimental Economics, and Psychological Review. Moore is the author of the soon to be released Perfectly Confident: How to Calibrate Your Decisions Wisely, and he teaches popular classes on managing organizations, negotiation, and decision making.

  • How can you be confident in your decisions?

  • Ways that psychology research demonstrates we are often overconfident in the decisions we make:

    • Overestimation - thinking that you are better, faster, or more likely to succeed than you are

    • Overplacement - the exaggerated belief that you are better than others

    • Overpercision - excessive faith that you have the right answer. 

  • Thinking probabilistically, view the future in probabilities and distributions of outcomes as opposed to one specific outcome. 

  • Ask yourself: WHAT ARE YOU WRONG ABOUT RIGHT NOW?

  • Calibrating your confidence includes appreciating all the reasons why you might be wrong. 

  • Some of the things you currently believe now are WRONG. 

  • Don’t fall prey to “resulting," don’t view outcomes as inevitable. 

  • Why you should start thinking in “expected value"

  • Are people born confident or is confidence made?

  • How can you deal with bad outcomes and maintain your confidence?

  • What’s the best way to manage your emotions and stay confident when things don’t work out?

  • Fooling yourself into being more confident can lead you to take risks that may not turn out well. 

  • What should you do if you’re stuck in under confidence and inaction?

  • Which tasks does greater confidence help you perform? Which tasks can greater confidence be a hindrance?

  • How do you have the unique and powerful combination of courage and humility that lets you act more boldly when it’s the right time and be more cautious when it’s the right time?

  • Powerful leaders are willing to admit ignorance and bring people to the table who will raise difficult questions.

  • The best general-purpose de-biasing tools

    • Consider the opposite of what you’re thinking

    • Consider thinking of the downside

    • Use a pre-mortem to understand why things have gone horribly awry

    • Capitalize on disagreement. Rather than avoiding or hiding disagreement, try to pull it out to the forefront. 

    • Ask yourself - what does the other person know that you don’t? What are the best reasons 

  • “Wisdom is the tolerance for cognitive dissonance"

  • How you can use a “premortem” analysis as a decision journal to understand the risks, crystallize your thinking, and get more clarity around the potential future outcomes - so you can make better decisions. 

  • Homework: Think about the future in terms of a range of probability distributions. 

Thank you so much for listening!

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Episode Transcript

[00:00:04.4] ANNOUNCER: Welcome to The Science of Success. Introducing your host, Matt Bodnar.

[0:00:11.8] MB: Welcome to the Science of Success; the number one evidence-based growth podcast on the Internet with more than five million downloads and listeners in over a hundred countries.

In this interview, we share how you can finally make decisions with perfect confidence, we tell you what to do when you’re stuck in inaction and lack confidence in your decisions and how to avoid being overconfident and making big mistakes with our guest, Dr. Don Moore. Austin will be joining me on this interview as well.

Are you a fan of the show and have you been enjoying the content that we put together for you? If you have, I would love it if you signed up for our e-mail list. We have some amazing content on there, along with a really great free course that we put a ton of time into called How To Create Time for What Matters Most In Your Life. If that sounds exciting and interesting and you want a bunch of other free goodies and giveaways along with that, just go to successpodcast.com. You can sign up right on the homepage. That’s successpodcast.com. Or if you’re on your phone right now, all you have to do is text the word smarter, that’s S-M-A-R-T-E-R to the number 44-222.

In our previous episode, we were joined by Guy Kawasaki for a casual discussion, what we called a fireside chat, where we touched on life, business, success and many stories from the trenches of growing companies.

Now for our interview with Don.

[0:01:41.3] MB: Dr. Don Moore is a Professor at the Berkeley Haas School of Business, formerly at Carnegie Mellon. He's an expert in psychology and his main research focus is in overconfidence. Don's research has appeared in popular press outlets and academic journals, including The New Yorker, The Wall Street Journal, NPR and many other media outlets. He's the author of the recently released Perfectly Confident: How to Calibrate Your Decisions Wisely and he teaches popular classes on managing organizations, negotiation and decision-making. Don, welcome to the Science of Success.

[0:02:14.7] DM: Thanks, Matt. Great to be with you.

[0:02:16.7] MB: Well, I'm super excited to have you on the show today. Decision-making is one of my all-time favorite topics and one that's near and dear to my heart, so I can't wait to really dig into all this stuff.

[0:02:26.2] DM: Same here.

[0:02:27.0] MB: Well, I'd love to start out with one of the biggest questions that I get all the time from Science of Success listeners is around their level of confidence when they're making big, tough decisions in their lives. That to me is such an important issue, which it's so timely that you wrote this book, because to me that is just absolutely critical. I'd love to begin with this idea of how can we be confident in our decisions and what does it even mean to be confident?

[0:02:57.4] DM: The question of what confidence is is a profoundly important one. My research disentangle the approaches, different approaches to the study of confidence. One form of confidence is thinking that you're good. In particular, when psychologists have studied confidence, they have focused on overconfidence. Over estimation is thinking that you're better than you are, over-placement, the second variety, is the exaggerated belief which you’re better than others and over-precision, the third form, is the excessive faith that you know the truth, or that you have the right answer.

[0:03:29.5] MB: Got it. Those are the three different categories of overconfidence. Tell me a little bit more about each of those and distinguish between them.

[0:03:38.8] DM: Yeah. Overestimation manifests itself, perhaps most dramatically in examples like the planning fallacy, or the illusion of control, where it leads people to behave as if they will achieve more, that they'll get more done than they actually do. If this affects you like it affects me, it shows up in a to-do list with more commitments than there is time in the day. When I think about how much I'll get done in the future, somehow this bottomless optimism that “I'll have more time, more flexibility, I'll be able to tackle more projects in the future than I can now. Right now, I'm really busy, and so I've postponed the commitment and say I'll get it done later.”

Then of course later, I don't have any more time, and so I wind up overwhelmed. Hard experience has taught me to calibrate a little bit better to say no to more and make more realistic forecasts of what I'll be able to get done.

The second variety, over-placement is the tendency to think that you're better than others more so than you actually are. When I asked the students in my MBA class how honest they are relative to their classmates, the average percentile ranking relative to the rest of the class, which in reality of course has to be 50. If people give themselves percentile rank relative to the rest of the class, where a 100 means you're the very best, a 100% are worse than you, zero means at the very worst. There's nobody worse than you. Then the mean for the class has to be 50. The average on honesty is 70 or 80. Most of my students think they're more honest than their classmates.

The belief that you're better than others when you're not can get you into all sorts of trouble. When you survey entrepreneurs and ask how likely are you to succeed relative to your competitors, they report fabulous levels of over-placement. They think they're way more likely to succeed in this competitive market than are their rivals. Well, that might explain high rates of entrepreneurial entry, intense competition and then subsequent high rates of failure.

The third form, over-precision is the excessive faith that you have the right answer. This manifests itself in our reluctance to consider alternative points of view, our reluctance to consider advice from others, our neglect of alternative perspectives, which can have profound consequences. Studies in behavioral finance have offered it as an explanation for the high rate of trading in the market.

Lots of people go into the market without thinking who's on the other side of this trade and what do they know that I don't know? The failure to think through that can leave you overconfident in your estimation of the securities value and too willing to trade with other people have better information than you do.

[0:06:30.9] MB: Over-precision to me is so dangerous, not being willing to update your beliefs and consider that you might be wrong is such an insidious trap that you can fall into.

[0:06:44.3] DM: Amen. It is the variety of overconfidence that is actually most persistent. My research has identified circumstances in which people under-place themselves and underestimate themselves. The impostor syndrome is all about the erroneous belief that I don't have what it takes. On the other hand, research has identified very few instances of under-precision. It hardly ever happens that people are less sure of anything than they should be.

[0:07:15.8] MB: If we have all of these contributing factors that can cause us to make worse decisions, how do you think about approaching decision-making from a different perspective and trying to figure out the right level of confidence?

[0:07:30.6] DM: That is the big question that my book attempts to tackle. How do you get perfectly calibrated in your confidence? How do you get perfect confidence? My book offers a number of different tools for doing that better. One is to think about uncertainty in probability distributions.

Too often, we’re tempted to try to predict the future as if we could know what we're going to happen. That's just not realistic. The future will always be uncertain to some degree. For most things, it makes sense to think of the future as a distribution of possible outcomes and thinking through what could happen and how likely each one is will make you much better at being able to make wise decisions anticipating that uncertain future. Sometimes you'll wind up in situations with others who have different views from you, who you'll be tempted to argue with.

I recommend asking instead, want to bet, invite the other person to put some stakes on what they say they think is going to happen and listen to the arguments that they make behind the logic of that bet. What do they know that you don't know and how should you revise your beliefs, so that they're closer to the truth? Are your beliefs strong enough and certain enough that you're willing to put down some money to put real stakes on your belief? Well, that discipline is very useful for helping you calibrate your confidence.

[0:09:05.3] MB: When you say calibrate your confidence, to me one of the most interesting things and I loved part of the book where you had these exercises, where you asked people to estimate what is the probability of dying from an injury, for example, out of the total probabilities of different things that might kill you and the other various statistics that you had in there. I thought it was so, so compelling to think about really forcing yourself to make some of those estimations, because a lot of times what you realize or don't realize is that there's so many different ways that you can be wrong and you think, “Oh, yeah. I'm right.”

[0:09:43.0] DM: Yeah. There's a wonderful book that I read not long ago by a journalist named Kathryn Schulz. The title of a book is Being Wrong: Adventures in the Margin of Error. She tells about how when people would ask what her book was about and she told them, they would say, “Oh, you should write about me. I'm wrong all the time.” To which she would say, “Oh, that's interesting. What are you wrong about right now?” They didn't have an answer to that. They couldn't have.

There's a challenge at the heart of that story and that is calibrating your confidence depends on appreciating all the ways in which you could be wrong. Some of those include unknown unknowns. Sometimes we’ll be wrong for reasons that we've just never imagined. That is one of the fundamental challenges in calibrating our confidence and the accuracy of our knowledge. There's some things that we just don't know. The prospect that the global economy could have been plunged into this dark depression as a result of a pandemic, well, my guess is most of the forecasts from smart economists a year ago did not put the probability on that outcome very high and they will look recklessly overconfident as a result.

[0:11:00.7] MB: That's such a powerful question. What are you wrong about right now? Because it's easy in hindsight to say, “I was wrong about X, I was wrong about Y.” As soon as you bring it into the present, there's almost a physical resistance to – those biases immediately kick in. You say, “Well, I'm not wrong about anything right now.” In six months you look back and be like, “Wow. I was wrong about that. I was wrong about that. I was wrong about that.”

[0:11:22.7] DM: Yeah. Yeah. I mean, that challenge underscores how easy it is to go through life, imagining that we're right about everything all the time. The things we believe, we believe them, because we believe them to be true, even while we acknowledge, “Oh, man. There's all that stuff that I used to be wrong about. Well, thank goodness. I don't believe that wrong stuff anymore.”

In there, there's a lesson. Some of the things you believe now are wrong. You should be appropriately humble about the possibility that a given belief might be one of those things that you don't believe so much down the road.

[0:11:57.9] MB: That comes back to what you said a second ago around thinking probabilistically. This is one of the biggest takeaways for me that I've spent years really internalizing it. I'm a poker player. It may have come from even lessons in poker back in the day when I started getting my butt kicked in that game. It's this idea that the future is not one thing. It's a distribution of potential outcomes all with different probabilities.

[0:12:23.4] DM: Exactly.

[0:12:24.6] MB: It's not natural to think that way, but once you do, you can really start to get more comfortable with a lot of ambiguity and the reality that there's all kinds of different things that could potentially happen.

[0:12:36.5] DM: Exactly. Yeah. Annie Duke lays out the logic of that thinking, growing directly out of her experience as a championship poker player in her book, Thinking in Bets, which I highly recommend. She walks through the logic of the acknowledgement that the future is a distribution of possible outcomes and the imperative to use that knowledge to make smart bets. Sometimes they'll turn out great, in expectation they will be wise, but that doesn't mean luck is always going to go your way and sometimes you'll place a smart bet it turns out badly. There, you have to stop yourself from engaging in the mistake that I'm sure you've learned about in your studies of poker and that is resulting, taking the outcome and imagining that somehow it was always inevitable.

No. The hindsight bias will fool you into thinking that way. Don't make that mistake. Remember how little you knew at the time that you were making the bet. If you made it sensibly betting on the expected values that you knew at the time, you don't have to feel bad for having made a mistake. You made the smart decision you could have at the time. You can feel sorry for yourself that you got unlucky, but you shouldn't feel stupid for having made a mistake.

[0:13:57.6] MB: Yeah, that's such a great point. We actually interviewed Annie on that whole topic as well. For listeners who want to dig in specifically around some of those lessons, we'll throw that in the show notes. The other piece of that that you talk about in your book that I thought was a great insight and it's something else that comes out of poker is this notion of thinking in expected value. Can you explain that concept for listeners who might not be familiar with it?

[0:14:18.5] DM: Yeah. It is such a powerful concept. My economics colleagues tell me that those who want to be more rational in their decision-making should make decisions that maximize expected value. To figure out something's expected value, you just take its value to you, whatever that is and multiply that by its probability. In my class when I make this point, I invite my students to play a game where I flip a coin and if it comes up heads, I give that person $20. If it comes up tails, they get nothing.

Well, how much would they be willing to play that game? When I opened up the auction, the bidding goes very quickly to $10 and then stops. Why? $10 is the expected value of that game. There's a 50% chance of 20 bucks and a 50% chance of zero. Thinking about future prospects as expected values, where there's some outcome that's a value to you and its probability is less than a 100%. You've got to discount that value by the probability. Multiplying the two gives you expected value.

[0:15:25.3] AF: I'm curious, Dr. Moore. Zooming out a little bit, are people born confident, or is that something that's instilled in them through life and their experiences with various people and various situations?

[0:15:38.2] DM: It's interesting question. There are lots of circumstances in which life pushes us toward the expression of confidence, but it's not the case that there are some people who are just more confident about everything all the time. What we observe is that there are powerful situational effects. There are some circumstances in which most people will be incorrect in assessing their confidence. Like my students who all think they're more honest than their classmates.

Then there are other circumstances in which we're all prone to under-confidence. If I ask those same students to put themselves on a percentile scale relative to their classmates in their juggling ability for instance, the mean will be well below the 50th percentile. They think they're below average in juggling. Those are circumstances in life when we're prone to falling victim to the imposter syndrome, where we erroneously believe we aren't good enough, or don't have what it takes, when in fact, it's hard for everyone.

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[0:18:22.1] AF: It's interesting, because I think most people probably have the experience of dealing with someone who's way overconfident. Like for instance like, “Oh, yeah. I've got it. I'll jump on stage and talk to all these people and make it up there.” They're sweating and jumbly and don't really know what to say. Then there's the opposite, where someone might be very soft-spoken they might not really raise their hand, or be the first one to jump in. But when they do something, they go and they absolutely crush it. You're like, “Hey, come on now. Why didn't you tell me you were so good at this?” It's almost like a comfort with your ability that keeps you from having to be overconfident.

[0:18:55.3] DM: Yeah, you're highlighting the bigger risks on either side of the confidence error. To be overconfident, think, “Yeah, I got this one in the bag. Everybody loves me. I'm hilarious.” Then you get on stage and make a complete ass of yourself. On the other hand, being under-confident, being reluctant to step out on stage when you would have been brilliant is a loss of its own. Being overconfident will lead you to make errors of commission, where you take action that afterwards you think, “Oh, I wish I hadn't done that.” On the other hand, being under-confident leads you to make errors of omission, where you would have been successful if only you'd had the courage to give it a try.

My admonition that people should be well calibrated in their confidence is an invitation to nail that bull's eye, to figure out what you should undertake that you'll be successful at and what you are unlikely to be successful at and therefore, you shouldn't try. Now I make that encouragement in light of the advice that just gave about expected value, because the future is uncertain and sometimes you can't know whether you'll be successful. The difficulty there is in making smart bets, figuring out what's worth trying, even when there's a risk of failure.

Here I think of well-calibrated entrepreneurs who didn't delude themselves or their investors about the risks, but who still undertook a risky project because the potential upside was large enough. There's a great story about Jeff Bezos early on in Amazon's life when he told potential investors, “I think there's probably a 70% chance that you're going to lose any money you invest in Amazon. Don't give me money that you can't afford to lose.”

[0:20:45.1] AF: Yeah. Now looking back on that, that's such a crazy statement just given there, where Amazon is gone. It's like, can you imagine being that person who was like, “Well, I'll just not give this money, because I really don't think I could afford to lose it.” At the time, very well calibrated thing to say. Sticking with this notion of calibration, I was delighted to find out that you’re an Annie Duke fan. Obviously, Matt and I are. She was great to have on the show and we've had a number of probability and high stakes poker players on. One of the big things that we've touched on is being able to separate yourself from the outcome saying like, “Okay. I may have had all the proper inputs. I made all the right decisions.”

Especially in something like poker and such in life as well, you can't always be guaranteed an outcome. This can throw us out of calibration, right? We might think we're pretty confident and we're really well calibrated in an area, but then if we make what we deemed to be the right decision and then the outcome is bad, that can hurt our confidence and it can throw us out of calibration. How do we really work to A, remove ourselves from the outcome, but then also B, get recalibrated in the event that we've taken a hit?

[0:21:53.0] DM: Yeah. It's a great question, because some of these hits can really shake you and make you feel bad about yourself, make you worry that you're in a losing streak, or maybe you're not as good as you thought you were. Annie Duke's advice for poker players who are tilting is relevant here. If your emotions are overtaking you and you're overreacting to the last hand, take a break, step back, reflect again on the expected values that you know.

For poker players, you know the probabilities coming out of that deck. Go back to that and don't overreact to what happened in the last hand, just because you got unlucky. You had a really strong hand and it was unlikely, but there was another player at the table who had a hand that wound of beating yours. Well, don't start changing your whole strategy just because you got unlucky in the prior hand. Stick to this strategy that you know will pay off in the long term and come back to that rational, sensible, calibrated center.

That can be tough to do when you're overcome by emotions, when you're overcome by feelings of regret, or when you're feeling bad about yourself for having gotten unlucky on a bet that you had good reason to think would have turned out in your favor. Here's a real conflict between what psychologists call system 1 and system 2 thinking, where if your emotions overtake you, you can wind up doing things that aren't in your interest, when your subjective weighting of probabilities is really at odds with the true probabilities.

[0:23:35.5] AF: Yeah. I think being able to come back to that that middle ground and recalibrate by really taking a step back and in some cases, not doubling down is huge. I want to shift gears a little bit. This is something is a little hierarchy, but in your book you mentioned traditional self-help books and all these speakers, they tell us to be more confident, which can really end up being bad advice. Really at the Science of Success, we like to focus on evidence-based growth and we really reject a lot of the norm in self-help, which is a lot of things aren't scientific, a lot of things aren't really based in studies.

One of my favorite examples it's like, if someone tells you to rub honey all over your stomach and run naked through Times Square, your anxiety will go away. If you do it, technically, problem solved, as long as you believe it and you get through it. It's a little more dangerous in the case of telling someone to be more confident, because there's just so many more things you can impact in ways that that can go out in your life and really affect things you're doing and things that – and people you're interacting with the wrong way as well. This is more of a tangible bad piece of advice, more so than a lot of what we see and for lack of a better term, woo-woo personal development space.

[0:24:52.2] DM: Amen. I think you have highlighted a profoundly important problem. It's simply fooling yourself into being more confident, if it's not backed by substance can lead you to take risks that are unlikely to turn out well. I mean, I think it's easy to understand how people could make that mistake. In day-to-day life, we observe confidence and success go hand in hand so often, right? It is the confident political candidates who are more likely to win, confident athletes more likely to be victorious, more confident cancer patients live longer.

In real life, we don't have exogenous manipulations of confidence. The possibility that both confidence and success arise from the same underlying cause that is actual ability or circumstance suggest, maybe fooling yourself into being more confident isn't actually going to help. What you need is an experiment. If the question is should you fool yourself into being more confident, will that help you perform? Well, what you'd like to know to answer that question is an experiment where you have a manipulation of confidence that doesn't arise from actual ability. Then observe whether that change to confidence affect performance. I ran a few studies with Elizabeth Tenney and Jennifer Logg here at UC Berkeley, where we tried to do exactly that.

We started out by asking people in what sorts of tasks do you think greater confidence will help you perform? Then we took what they told us and then run some experiments testing that idea. People told us, they thought that confidence would help perform better on a math test. We did that. We formulated a math test and gave it to a whole bunch of people. Some of whom we had induced to be confident by telling them, “You're going to do great at this.” We gave them a pretest and then told them, “You did fabulously on that. Based on what we know about you, you should expect to do very well on the math test that's coming up.”

Other people were induced to feel less confident. We said, “Yeah, not so much. You're probably going to have a hard time on this test coming up.” Then we could observe in the actual outcomes how that manipulation affected what happened. It doubt that our manipulation of confidence had no effect on their actual performance on the math test that came up later. This despite the fact that they expected to have different outcomes based on the manipulation. I mean, we told them to expect different things, so that's not a surprise.

What may be more interesting is that there is a separate group of observers who we gave the whole scenario to. We said, okay, we put together this math test, we've got a whole bunch of people to take it. Before they did, we led them to expect that they were going to perform well or not.

Now this manipulation had nothing to do with their actual abilities or their performance on the pre-test. How much do you think that manipulation affected their actual performance on the math test? By the way, we’ll pay you more if you're accurate in predicting the outcome of the experiment.

[0:28:01.1] AF: Ooh. Stakes are high.

[0:28:03.0] DM: Uh-huh. Those observers were ready to bet on those in the high confidence condition. By a wide margin, they expected them to actually perform better on the math test. In reality, we found no difference. We thought, maybe the math test is weird. We didn't give them the chance to study, or prepare. Either you understood the math problem or you didn't, and so maybe there wasn't a role for persistence.

We tried other things. We tried trivia tests. We tried tests of physical endurance. We tried tests of athletic performance. We tried boring vigilance tasks and none of these tasks could we find that our manipulation of confidence actually mattered for performance. But in each one, we had the observers ready to bet on the high-confluence people performing better.

[0:28:51.8] AF: Such an incredible story and what a study as well. I think in my own personal life even, I follow a little bit of boxing and UFC and everything. I got to admit, my even thinking this now, the one that comes out loudest and most confident is typically the one that I usually think is going to win. I think I'm probably wrong more than I am right.

I do want to ask you too, because this is something Matt and I can both relate to having been through the experience, but you do have a story at the beginning of your book about going to a Tony Robbins event. Can you share that story real quick?

[0:29:25.6] DM: Yeah. I have to say I'm a fan of Tony Robbins.

[0:29:28.2] AF: As are we. Yeah.

[0:29:29.4] DM: He does a lot of things well. He is inspiring in many, many wonderful ways. I got the chance to teach with Tony and then got an invitation from him to go to his Unleash the Power Within Weekend, which was wonderful and inspiring in many ways. As you know, one of the main events for his Unleash the Power Within Weekend is The Firewalk, where he persuades the assembled crowd, thousands of people, that they are going to walk across hot coals and come through unscathed.

It is daunting and scary. He whipped us up into such a lather of confident excitement that we charged eagerly out into the lot where these fiery walkways have been built from the burning embers of bonfires that Tony's crew had built hours before. We get out there in the dark and we see these glowing paths of fire, and then following his instructions, charged across them one at a time. It was dramatic and empowering.

I got carried away and failed to take the precautions that he had advised us to take. You got to do a few things to keep yourself safe during this. It is real danger. These coals are many hundreds, maybe thousands of degrees. You want to roll your pants up, so your pants don't catch fire. You want to keep moving. Then at the end, you want to get your feet down with water. There are members of the Los Angeles Fire Department there to spray our feet with water.

I didn't do that quite as well as I should have. I got the worst burns at the bottom of my feet. It was embarrassing and it was humiliating. Afterwards, I had to think, “Oh, my God. I'm so silly.” I got totally carried away. It was that feeling of embarrassment that highlighted one of the risks of overconfidence and helped motivate me to write the book.

[0:31:45.0] MB: Great story and definitely demonstrates how overconfidence can burn you quite literally. You said something a minute ago that I thought was really interesting as well, which is this distinction between this idea that there are some things we're overconfident about systematically and then there's some things that we’re under-confident about systematically. To me, that's a really important lesson that as humans, there are certain spheres we’re not just either more confident or less confident, there's really certain areas where we have a bias towards one or the other and they can both be problematic.

[0:32:21.7] DM: Yeah. Yeah. That's exactly right. Figuring out where you are making mistakes and seeking out better information, allows you to forecast the future with more accuracy, or calibrate your assessment of yourself. Man, that is extremely valuable. Businesses that are vulnerable to making these mistakes thought of investing business intelligence that helps them forecast for instance, how long it's going to take to complete the software development project, or how they really stack up against the competition.

[0:32:53.9] MB: That makes total sense. One of the other things that I thought was really interesting was from the book and something you've also touched on in this conversation as well is this idea that perfect confidence, or perfectly calibrated confidence I should say is not necessarily the same thing as being totally confident. It's really easy in our minds to get those things mixed up and think that they're synonymous, but in reality, the perfect amount of confidence is as you call it, almost a Goldilocks zone that's between overconfidence and under-confidence.

[0:33:30.2] DM: Amen. Yeah. You should believe the truth. There are lots of circumstances in which people will endorse optimism and the idea that they should believe the future is going to be a little bit better than it actually is. That's tough. Figuring out exactly how much better is a profound dilemma. Should you believe that you can jump 10 feet, when you can actually just jump 5 or 6? That'll get you into trouble if you're mountain-climbing, fooling yourself about how good you are, or how much you can accomplish runs real risks.

Now in my admonition to be well-calibrated in your confidence, I hope that your listeners don't hear that they should tone it down, that they should be less confident across the board. I don't think that's right. Each of us has vast untapped potential. There are all sorts of things that we could be successful at if only we have courage to try. There are enormous opportunities in front of us.

Scott Galloway talks about the fabulous opportunities that are opened up in economic downturns like this one and how businesses founded in recession there are actually more likely to be successful when business was founded during boom times. There are opportunities all around us and failure to appreciate those are a mistake, just as much as thinking that we can accomplish something that we can't and falling on our faces.

[0:35:03.7] MB: Yeah, that's a really great point. I've seen it again and again with people who are fans of the show, listeners of the show, that they're in many cases, trapped in under-confidence and inaction within certain areas of their lives. That's why I love these probabilistic thinking models and really studying the art of decision-making, because one of my favorite phrases that you used in the whole book was that “the importance is to strike this uncommon combination of courage and humility.” If you can just do that and you start to realize that at some times you're going to act really boldly when it's the right time and sometimes you're going to be really cautious, but it's very context dependent and being able to really rationally evaluate the situation and make the right decision given the information, given your own emotional state, etc., is such a critical tool to being an effective decision-maker and being ultimately a confident decision-maker.

[0:36:00.5] DM: Yeah. Yeah. Having the courage to be appropriately humble, I think is a challenge for every leader that's facilitated by being brave enough to seek out colleagues, employees and advisers who will tell you when you're screwing up. It is the insecure leader who just appoints sycophants who tell them that they're doing a great job. Yes, boss. Your jokes are all hilarious, boss.

If you want to figure out the truth, if you want good advice from smart people that allows you to capitalize on the wisdom of the crowd, you want to surround yourself with people who have the courage to tell you, “No. You need to improve on this and that, or you're making a mistake, or this plan that you've hatched that you're so attached to, uh-uh, that's more likely to turn out badly.”

[0:36:53.2] MB: Another quote that you mentioned in the book that dovetailed with that was this idea of the combination of being willing to admit your ignorance and to raise difficult questions. When you pair those two things together, you can really get towards what's actually true and start to formulate really powerful decisions.

[0:37:12.3] DM: Yeah. When I think about effective leaders, I think about people who are capable of drawing out those sorts of lessons from others, inviting criticism, inviting disagreement at meetings. Not charging in as the boss and imposing your perspective, or browbeating everybody at the meeting until they agree with you, instead, listening to the concerns and disagreements of those who are present. I love the Alfred Sloan story of the meeting at which he looked around at his board and said, “Gentlemen, I take it we're all in agreement on this.” They all nodded and he said, “I propose we adjourn for a while to develop some disagreement and understand what this topic really is all about.” That takes courageous leadership to actually develop disagreement and figure out if it can help you achieve any insight to make a better decision.

[0:38:07.0] MB: I want to segue into you touched on a few of these earlier, but I want to get a little bit deeper in some of the tools that we can use to be better decision makers and decision makers that have their confidence correctly calibrated.

[0:38:22.1] DM: Yeah. Tools that I advocate for helping people get better about calibrating our confidence include what psychologists have called the best general-purpose de-biasing tool that is considered the opposite. Ask yourself where you might be wrong, consider the downside of your plans. If you're working with others, you might consider implementing what Daniel Kahneman has called a pre-mortem, a meeting where you imagine a future scenario in which your plans have gone horribly awry and ask, what are the most likely reasons for failure? Is there thing you can do now to mitigate against them?

Other things you can do include getting serious about forecasting. Again, thinking through that probability distribution, thinking about the likelihood of various outcomes and figuring out how to place smart bets allow you to take advantage of your understanding of that uncertainty. Then also, capitalizing on disagreement.

Rather than avoiding disagreement or papering over it, or trying to argue other people out of beliefs that seem to disagree with yours, ask yourself what do they know that you don't? What leads them to their beliefs, especially when it comes to political or partisan conflicts, it's too easy to write off those who disagree with you as crazy, or evil somehow. I advise my students to resist that temptation, to simplify that way and assume the worst of the people who are on the other side of some argument or discussion.

Instead, think about what they know that you don't. What's brought them to that perspective? Are the real insights there that you ought to be incorporating into your view? Sometimes yes, and that is very valuable. It's possible that they're motivated by ulterior motives that really aren't all that helpful to you, but working hard to take their argument seriously and think about what the best reasons backing them up might be can help you sharpen your argument and revise your opinion, so that you get closer to the truth.

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[0:42:14.5] MB: I was a debater in high school. If my research was correct, I believe you also were.

[0:42:20.0] DM: Yeah. Yeah. Well, good sleuthing.

[0:42:22.3] MB: To me, one of the most powerful lessons from debating is that you have to debate both sides of an issue. You really learn to wrestle with all of the different arguments and not only see both sides, but understand that there's a lot of ambiguity, there's a lot of gray area and many issues are not as cut and dry as it would seem if you're just stuck on one side of the fence.

[0:42:46.8] DM: Yeah. Yeah. That's exactly right. Forcing yourself to argue both sides really provides useful insight into which arguments are strong and which arguments are flimsy, but just feel good, because you're so motivated to be allied with one side or the other.

[0:43:04.9] MB: Yeah, absolutely. Forcing yourself to do that, you really start to – you see the weak points, you see the strong points. This is tangentially related, but touches on the same idea which is another broader theme that I drew from the book, which is this notion – one of my all-time favorite quotes is that wisdom is the tolerance for cognitive dissonance. To me, to be confident in your decisions, to make confident decisions with the right amount of confidence, you really have to have a tolerance for ambiguity and an acceptance that things may be unknowable. The future may be uncertain. Sometimes you have to be able to weigh those risks and still take action, or still make a decision, even without certainty.

[0:43:47.2] DM: Yeah. That balance, it is evident in the decisions of successful investors. People like Warren Buffett talk about placing smart bets, not being able to be sure at the time that you're buying some stock, that it's definitely going to go up in value. But thinking through the uncertainties and using that information to plot the wisest course forward that you can.

[0:44:16.1] MB: I want to dig into one of the strategies you mentioned, because I think it's such an important tool and one that I personally utilize. Tell me a little bit more about what a pre-mortem is and how we can use that to improve our own decision-making.

[0:44:29.6] DM: Yeah. It's a term that comes from Daniel Kahneman in his book Thinking Fast and Slow, obviously a leading light in my field in the study of decision-making. He talks about the value of anticipating why something could go wrong. We all know about post-mortems, where after disaster, you get it together and try to think about what went wrong and how you can avoid it in the future. That's very useful is also vulnerable to hindsight bias, or resulting. The pre-mortem is useful for thinking ahead about risks and doing what you can to reduce their potential impact to protect yourself from them insofar as you can.

The pre-mortem is useful for specifying the probability distribution and the expected value of different possible courses of action ahead of time. It's really useful for documenting the process of your decision. If this is a high-stakes decision, if you're going to invest millions or hundreds of millions in acquiring another company, is that the right strategy? Is it a wise course of action? Well, what's likely to happen? What do we think it's going to do to sales? What do you think it's going to do to morale? What do we think it’s going to do to our growth prospects?

Quantifying those outcomes ahead of time and thinking about the range of possibilities, could it double sales? Could it reduce sales? How likely are each of these things? That is very useful. Then documenting that process such that afterwards when you know the outcome, you can go back and check yourself. Ask, how good a job did we do thinking about this? Have we learned anything in the process that will help us make these sorts of decisions again? The pre-mortem anticipates future problems and tries to build robust strategies for addressing those likely futures.

[0:46:27.9] MB: Concretely, if someone was to create a pre-mortem, what would it actually look like in terms of what are you doing and how are you executing it?

[0:46:36.3] DM: Yeah. It usually begins with invitation to think about a future disaster. How could this turn out badly? If we are going to be conducting a post-mortem a year from now, what are the most likely reasons for that? Identifying and enumerating those reasons, then thinking about how bad they would be, considering what you could do to avoid them and robust strategies that are likely to work out in any event are very useful outcomes of a pre-mortem discussion.

Then committing that to writing in a way that formulates a plan that you can draw lessons from later on, that can also protect you from some of the more pernicious effects of the hindsight bias. An example that I give in the book has to do with risky product development. When Apple developed the iPhone, it was not obvious that it was going to be a homerun success. A number of people, including Steve Ballmer made fun of Apple's big investment in the iPhone. Of course, Apple was familiar with a similar investment in the Newton, a handheld digital assistant from just a few years prior that had been a market flop.

If you're developing some expensive new product, say it's going to cost you several million dollars to develop it, if its prospects for success are not guaranteed, how small are they? Even if the chances are low, just a 10% chance of a big success, the company should want to take that risk. If its expected value is positive, say a 10% chance of a 100 to 1 pay off on your investment, that definitely has a positive expected value. The company should want to take that risk every time.

The individual manager considering that risk has got to be scared. A 90% chance of failure. Well, I've only got one career and if the company's going to punish me, if this doesn't turn out well, I don't want to do that. The company should want to help facilitate those why is expected value bets, even when the probability of failure is high. Doing so depends crucially on what many have called rewarding well-intentioned failure.

If someone makes a smart bet with a positive expected value and they happen to get unlucky, don't fire them. Reward them and truly innovative companies like Apple and 3M have gotten good at celebrating well-intentioned failure. When employees make smart risky bets on which they get unlucky, not firing them, but rewarding them instead.

[0:49:27.8] MB: Yeah, that's really smart. You hinted at something earlier when you're talking about pre-mortems that's a really important side effect of not only specifically using a pre-mortem as a methodology, but really using any written decision analysis, whether it's a decision journal or whatever. Doing that commits your ideas, commits your thinking to writing and it lets you revisit it over time and figure out where were you right, where were you wrong and get some really good feedback in terms of the quality of your thinking and how you can improve it over time.

[0:50:00.5] DM: Yeah. Annie Duke invites us to ask on a bet. You can ask that of others when they make predictions that you think are off, or they make claims that you think you can disprove. You can also ask it of yourself. A decision journal as you described is a great way to do that, where you write down what you think is going to happen. You make a bet with yourself and then follow up later and use that to get better. Learn from that history and sharpen your judgment in order to get closer to perfect confidence.

[0:50:35.0] MB: For listeners who want to concretely implement something we've talked about today, it doesn't have to necessarily be what we just talked about, but really anything from the conversation, for someone who wants to improve their decision-making, who wants to have perfect confidence when they're making decisions, what would one action step be, or one item you would give them to begin that journey today?

[0:50:57.2] DM: One of the simplest and easiest to implement is encouraging yourself to think in probability distributions. An exercise that I've found in my studies again and again and again helps people get better calibrated about their uncertainties is to attach probabilities to them. If you're forecasting what product demand is going to be for some new product a year from now or next quarter, well, think about the range of possibilities. Is it going to be exactly what it was last quarter? How likely is it to go up by 10%, by 30%, by 50%?

Take the range of possibilities, break them up into a set of mutually exclusive and exhaustive outcomes and then assign probabilities to those. That very exercise will help you calibrate your confidence a great deal. You will still be at risk of being too sure, being over precise in how you forecast that future, but it'll help you a lot. Then going back and tracking what happens afterward will help you improve your calibration yet further.

[0:52:03.0] MB: Great piece of advice and such an important component of being a better decision maker. Don, for listeners who want to find out more about you, about the book, about your work, what is the best place for them to do that online?

[0:52:15.7] DM: My website, perfectlyconfident.com. It's got links to blog entries and research papers. It's got an excerpt from the book and some of these exercises that people can go through online to help them calibrate their confidence. It also has links to where you can order the book.

[0:52:33.5] MB: Well Don, thank you so much for coming on the show, for sharing all this wisdom, research and some really great insights around how we can be more confident decision-makers.

[0:52:42.3] DM: Thanks for giving me the chance. It was a fun talk.

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