198. Dunning-Kruger Effect: Behavioral Economics Foundations

Welcome to episode 198 of the Brainy Business Understanding the Psychology of why People Buy Today's Behavioral Economics Foundation's episode is about the Dunning Kruger Effect. Ready? Let's get started.

You are listening to the Brainy Business Podcast where we dig into the psychology of why people buy and help you incorporate behavioral economics into your business, making it more brain friendly. Now, here's your host, Malik Melina Palmer hello.

Hello everyone. My name is Melina Palmer and I want to welcome you to the Brainy Business Podcast. In today's episode we are talking about one of my all time favorite concepts, the Dunning Kruger Effect. Now yes, I know this is one of those names that may have you wondering how interesting it could possibly be, or scratching your head and thinking which is that one. Again, I know early on I always used to mix this up with the Baader Meinhof phenomenon, not because they necessarily have anything in common, but because of the double name that has nothing to do with the concept itself. Titling Since I mentioned it, the Baader Meinhof phenomenon, which is also known as the frequency illusion, is what happens when you are considering buying a green car and then all of a sudden you start seeing green cars everywhere. It's not that there are more green cars now, simply that your brain knows that is something important to you and so you're filtering for them. Now you consciously notice them more because you told your brain green cars were important and worth noting. This sort of thing can also happen when you start learning about a concept. Say you just started to learn about what behavioral economics is and now you're seeing it everywhere. It's not that it wasn't there before, you just didn't notice it. Though in fairness there is a lot more now than there was five or 10 years ago. While the Baader Meinhof phenomenon isn't the same as the Dunning Kruger effect, they are still kind of related, which you'll see as I get into that concept here throughout the episode. I want to note first that the Bader Meinhof phenomenon doesn't yet have its own episode on the show, but there is a link to an article about it in the show Notes if you'd like to learn more. Along with other important articles, including the original research by Dunning and Krueger, as well as links to several other concepts with past episodes like those on optimism, bias, planning, fallacy, the focusing illusion, expecting error, nudges, and more. In those notes you'll also find links to get your freebie worksheet so you can take notes on the Dunning Kruger effect and begin applying your learning from today's show right away. Those show notes can be found within the app you're listening to or or@the brainybusiness.com 198 and with that, let's jump right in and unpack the Dunning Kruger Effect. To put the Dunning Kruger effect into its simplest form, it would say essentially that people who are unskilled will tend to overestimate their abilities, and those who are very skilled experts will underestimate theirs. A big lesson for you here is that people who promise the moon and sound too good to be true are are very possibly run by optimism, bias and the planning fallacy in this early stage of the Dunning Kruger effect, and they might not really know what they're doing. On the flip side, someone who undersells their skills could be more qualified than that person who seems very confident. I'll get to that more in depth as we go through the episode and when I give my top tips at the end of the show as we dig in on this and show what this looks like. As you go along this sort of scale of the Dunning Kruger effect, I want want you to think about a kid who graduates from high school and believes they know everything. Whether you're remembering your own life experience here, or perhaps thinking about your kids or anyone else, I'm guessing you have some example that makes this feel very real to you at the time. When someone graduates from high school, they're at a point which has come to be known as the peak of Mount Stupid. Truthfully, while that isn't what they called it in the original research paper, which, like I said, is linked for you in the show notes. This is the official term used by most people today to explain this concept, and it's one of the reasons I love it so much. At the peak of Mount Stupid, someone has lots of confidence, but it isn't built on much competence. They have no idea how much they don't know, so they're blissfully unaware of their precarious position and how close they are to fully falling right off the cliff. When this kid gets to college and realizes they don't know nearly as much as they thought they did, they fall into the valley of despair. This is a paradoxical point in the relationship between confidence and competence, as Dunning and Kruger point out in their paper. As the person gains competence at this point, they have a drastic decline in confidence, which isn't how it should be logically, because as you Gain any competence, your confidence in your increased knowledge should go up as well, right? Well, logically, sure. But we've all had that moment where we fell off the peak of Mount Stupid and realized just how ridiculous we were being. Now that we're in the Valley of Despair, as our eyes are opened to all the things we don't know, we get a little overwhelmed and maybe have some imposter syndrome to deal with. There's a reason it's called the Valley of Despair, so I'm not going to get into too much there, as you probably understand what it means. In some cases with things that aren't very important to you or your long term career, this is an option where you could bail, you could realize, whoa, there's a lot more to that than I thought, maybe I'll do something else. And for a lot of things, that's okay. There's no need to muck up your life learning a bunch of things that aren't going to serve you well. If you don't need them, you can let them go at this point and leave room for the more important things. And for those you may choose to persevere and increase your competence in the subject. This is an opportunity to look at all the things that you don't yet know and begin to research them. This gradual climb is called the Slope of Enlightenment. You slowly gain confidence as you grow your competence, though you might never get back up to the level of overconfidence you had way back at the peak of Mount Stupid. Your confidence as you become an expert could be less than that unrealistic confidence you felt early on when you didn't know what you didn't know. Eventually, you make it up the Slope of Enlightenment to the Plateau of Sustainability just in time to find a new area where Dunning Kruger smacks you in the face again. For our college graduate, this could be when they start a new job and realize their degree didn't prepare them for a whole lot of stuff that would have been useful to know as they start applying it all in this new role. If you take a moment now to reflect upon your own life, I'm guessing you could pretty easily come up with at least half a dozen examples where the Dunning Kruger effect reared its ugly overconfident head. Because of the trauma we experience when we fall into the Valley of Despair, it's so jarring, we can see those instances better than anything else on the scale. We may remember feeling embarrassed or shake our heads at how ridiculous we were that time in the Valley of Despair was likely one filled with counterfactual what if thinking where you maybe were a little harsher on yourself than you should have been. There are big moments where we can reflect and know that we experienced the Dunning Kruger effect even if we didn't have a name for it. And that's good to know. If for nothing else, it lets you see that this is natural and happens all the time, so you don't have to be quite so hard on yourself. When you do realize you're in the Valley of Despair, know that it is just one step on the journey, and if you reframe it, this actually means you gained enough competence to know what you don't know. This is a good thing. There are also plenty of times where you don't realize your spot on the Dunning Kruger effect chart. You're in various states of Dunning Krugerness. I'm making that up as a word now, but I like it. So you're in various states of Dunning Krugerness at any given time. While you're an expert in one thing, you are way overconfident in something else, where you don't have any idea the ocean of stuff you don't know. And for many items you're at various spots on the slope of enlightenment because of optimism bias. Most anything you haven't done yet you look at and think, that doesn't look that hard or shh, I could have done that in half the time. In general, whatever that is, it's more complex and difficult than you think. It is harder than you think. There's a whole mountain of stuff you don't know, and you're just starting your hike up Mount Stupid. Episode 112 was on the IKEA effect and the effort heuristic. That episode, like so many others, is of course linked for you in the show notes@the brainybusiness.com1988 along with your free worksheet that shows this kind of chart as you go along the slope of Enlightenment and off the peak of Mount Stupid and all that good stuff. If you would benefit from the visual with the effort heuristic. We know that humans tend to think things that took a lot of time or effort are more valuable. We're more willing to pay for a piece of art if we think it took longer to make, and we think there's more value in a poem that took more time to compose, or we don't necessarily think it's any better, but we do think there's value in that effort and a lot of the Time, that is true, but sometimes there are points where this bias and heuristic isn't serving us well. Someone might have taken a long time to complete something because they had no idea what they were getting themselves into and grossly underestimated how long it would take them. Some of the studies into the IKEA effect and effort heuristic were done using Lego. So let's use that as an example. If I had never built anything with LEGO before, and you put the Coliseum model in front of me, already built, I might think I could get that done in five or 10 hours, because I'm blissfully unaware of all the intricacies that go into the 9036 piece set. The Guinness World Record for completing that set was 13 hours, 37 minutes and 36 seconds. A novice like me would probably hit the Valley of Despair at around one hour in and realize it was going to take days, weeks, maybe more than a month to build that thing. And it would be extremely effortful. But that doesn't mean I would have put it together any better than the expert who knows all of what's coming. In reality, I might have to unbuild some things and might miss a piece here and there and really scour the instructions to make sure I'm doing everything right and trying to find pieces. And what does that one look like? Well, the expert who's getting it done in less time is likely doing a better job. The point is, I can live in blissful unawareness of my inadequacies forever and never have it be an issue until I try the thing enough to realize that I should have been a little less confident. And so we have this experience for all these things that we don't know enough about. And it feels like once we do know something, that we should know how much we don't know. But the original research from Dunning and Kruger looked at things that people should have some awareness on as to their level of skill already, and they didn't. Those tests looked at humor, grammar and logic. While humor may be subjective, grammar is something that people should have some awareness of, right? I mean, at this point they'd been through years of schooling and should know if they are good at grammar or not. In all four studies, participants who scored in the bottom quartile grossly overestimated their own abilities. Their scores put them in the 12th percentile, but they estimated they were going to be in the 62nd. So sometimes, even when you should know already what you don't know, you don't. The point here is to have some awareness and don't assume you know better than everyone else. This can be hard because of how our brains are wired and it doesn't always matter, like I said with the Lego example. But when you think about people on other teams or working on projects, or estimating how long it'll take you to do something you don't have much experience with, or when you find yourself saying those people are so dumb, I can see the answer clear as day. If they would just insert simple solution here, they would be done in a minute. If you have no knowledge and background, there's a good chance you are wrong here and there is a lot that you're missing. Of course there is the curse of knowledge, which I talked about with Adam Hansen when he was on the show. But I'm here to tell you that if it is something where you have little experience or expertise, be wary and at least aware of the Dunning Kruger effect. It's also important to remember that there is a flip to this as well. It isn't all about Mount Stupid, because if you remember there's a point where you become an expert and then underestimate your own abilities, whether you're a consultant or trying to decide if you really have the knowledge or skills to lead that project or take on that new team member or whatever it happens to be. If you have a lot of experience and background, be wary of this tendency to underestimate and undervalue yourself and your work. The person who seems way more confident than you and is getting all the work might be grossly under competent. Take some time to look around and understand the landscape as you're working your way up the slope of enlightenment or hanging out on the plateau of stability. When did everyone else stop climbing that mountain? Have you surpassed the masses and are you more of an expert than you realized? Or do you still have a long way to go? It's good to take some time to pause and reflect on your way out of the Valley of Despair and not let its memory haunt you forever. Are you undercharging for your services or undervaluing what you bring to the team? Are you letting people on Mount Stupid shout over you? You can't do this for everything, but on the things that matter, it's worth doing a little Dunning Kruger evaluation every so often to discover if you're underestimating or overestimating your confidence and competence at this point. And you can use the free worksheet I've created for you that accompanies this episode, which is waiting for you@the brainybusiness.com 198 and inside the BE Thoughtful Revolution where we keep all the freebies easily accessible. There's always new information out there, so don't take what you believe to be true or what was previously true for granted. The context is always changing, so those re evaluations are important. Now that I've told you what the Dunning Kruger effect is and how you can and should think about it for yourself, I want to talk about how this can be used in your interactions with others at work. The first thing to consider is in meetings or evaluating other departments. In both, I want you to look at your own moments where you have high confidence and low competence or high competence with not enough confidence to determine if you're showing up in the best way possible. Also look at others to determine where they are on that Dunning Kruger scale. You don't need to tell them about it or anything, but understand that if someone has no background in something and they tell you it'll be easy, or that it should only take a few hours, expect the error and do what you can to support the team in this process. You don't need to make them feel bad or judge them harshly here. Remember it's a natural human tendency. Instead, consider how you might help them or the team to see the issue created by the optimism bias, planning fallacy, Dunning Kruger effect mix to ensure it doesn't create a problem for you on the project. Depending on your spot within the team, this could include asking some thoughtful questions or requesting more check in points on smaller items along the way so you can be constantly re evaluating and pivoting together. There is value in letting them learn the lesson on their own, but that doesn't mean it has to negatively impact the whole group. This can be a positive learning experience for everyone. You don't need to push them off the peak of Mount Stupid. Instead you can kind of be like their soft landing space in the valley of Despair and guide back up the slope of enlightenment. Another place where the Dunning Kruger effect is really critical to keep in mind is when you look at coaching or giving advice to members of your your team. There are some people where it seems like they won't take any advice you give them. They are uncoachable and unwilling to listen. It's very possible that they are on the peak of Mount Stupid. Their overconfidence is due to a lack of competence. If you need them to be more open to listening to the advice you and others give them, it's important to look for the Valley of Despair. When they're in the Valley, they'll be much more willing to listen and be coached. Even hearing things that you've been saying for months that never made it through. Now is the time. And when you have this perspective on when the valley is coming, you might be able to see it. And perhaps it's helpful to nudge them along with a little project that you know is going to help them to realize all of what they don't know. But you want to be playing that safe enough, you know. Again, make sure you're not shoving them off the peak, but making it so it's a useful experience for them. And then don't underestimate the cognitive overwhelm that they will be experiencing during their time in the Valley. To put it another way, their subconscious is freaking out right now. There is lots of stress and counterfactual thinking and all sorts of junk taking up way too much space in their brain. They may be coachable, but if you give them too many things to change while they're feeling this stress, it's going to make the problem worse. So you need to be selective on what advice to give them. If they could only learn one thing and make one adjustment in this individual moment of opportunity, what would it be? What's the best way to nudge them along the path? What is that first small step that will help them the most? It might be useful for the various members of your team to do this thoughtful exercise before you find yourself with them in the Valley. You want to know what you'll do when they get there so that you're ready when that moment comes. Because like I've said, it's a uniquely coachable moment. It might be just a glimmer of space that you have to be able to coach them and you want to be ready instead of needing to take the time to figure it out. Because by the time you do, they might be out of the valley again. All right, now, before we close out this episode, let's take a moment to reflect on everything I've already talked about with the Dunning Kruger effect. I'm going to summarize the key points for you here and share a few more things to keep in mind in your work and life. First off, know that when people have low competence in something, they are likely to be overconfident in their own abilities. Those who are very competent have a tendency to underestimate their own skill or ability. Those with low competence and high confidence are on the peak of Mount Stupid as you are added to a team in an area where you aren't an expert. If you are confident that you know the answer and these people are missing something obvious, consider how the Dunning Kruger effect and other biases might be influencing your confidence. Next, there's an interesting point when there's an increase in knowledge where you realize all of what you don't know and that increased competence results in a drastic drop in confidence. This is known as the Valley of Despair. People in the valley may be uniquely coachable as long as you don't try to share too much with them because they're also in a state of cognitive overwhelm. Don't beat yourself up too much in the valley. Reframe it to remember that this is a good thing. It means you learned enough to get off the peak of Mount Stupid and you can now decide if it's worth the long hike up the slope of enlightenment or if this is something that isn't worth investing the time in. Third, as you build knowledge, know that you will gradually underestimate your abilities, skills and all the effort and training that went into what you need now know and can do. Just because it's easy for you doesn't mean it isn't of value to someone else. So you want to make sure that you are valuing your services or your place on the team properly. And whenever you have new people on a team or as part of a project, or joining a company or someone's in a new space, take that opportunity to over share information to help with where you both are on that Dunning Kruger scale. Knowing that they may be overestimating where you're underestimated. Underestimating. You want to just make sure that you're really in good communication at those points and don't take your spot on the Dunning Kruger scale as a fixed point. The context is always changing. Even if you're not learning new things, there are new discoveries and technologies and experts popping up every day on the things that matter. Stop every so often, perhaps once or twice a year, to evaluate where you are now and what your next steps should be as you continue along your path. I've shared this example on the show before, but I still always remember the advice I heard at a conference more than a decade ago now to fire yourself every 12 to 18 months. His advice was that when you start a new job, you come in with fresh eyes and see things. Those who've been there for a long time might overlook complacencies that could be causing problems as you get comfy in the status quo. You take a lot for granted. Firing yourself or however you want to think about. Taking a moment to pause and look around is important in using the Dunning Kruger Effect and many other natural biases and tendencies to your advantage. So that's our summary of things to keep in mind on the Dunning Kruger Effect and how it's it's impacting you, how you can be thinking about it and using it to be a benefit, how to reframe it so you don't wallow in the valley of despair, and how to support others on that journey as well. I hope you got lots of really great insight in learning about the Dunning Kruger Effect. And I know I've said it a couple times, but really want to make sure you know that there are freebie worksheets waiting for you, including one that is dedicated to helping you with the Dunning Kruger Effect, which is within the show Notes for this episode@the brainybusiness.com 198 that also has links to lots of other episodes that I think are a great fit for you to listen to next that are related to this Some I mentioned by name, some I didn't really call out specifically, but they're all waiting there for you and I'd love to talk with you about this concept to see how it's impacted you, what changes you might be making moving forward. Come find me on social media as the Brainy Biz everywhere, or if you're in the Be Thoughtful revolution already or you want to come and join us there in that free community, you can have a conversation about the Dunning Kruger Effect and how it's impacting you. I would love to hear from you and look forward to our conversation. And just like that, episode 198 on the Dunning Kruger Effect is done. Next week my friend Brian Ahern is back to share what it was like to write his third book, the Influencer, which is a business parable. He's going to talk about why he chose this route and how it differs from his more traditional business books, with plenty of tips for you. It's going to be a lot of fun. You don't want to miss it. Until then, thanks again for listening and learning with me and remember to be thoughtful.

Thank you for listening to the Brainy Business Podcast. Molina offers virtual strategy sessions, workshops and other services to help businesses be more brain friendly. For more free resources, visit thebrainybusiness.com.