Many people are unaware that they are victims of the Dunning-Kruger effect, which is a cognitive bias wherein unskilled individuals suffer from illusory superiority, mistakenly assessing their ability to be much higher than is accurate. Conversely, highly skilled individuals tend to underestimate their relative competence, falsely assuming that tasks which are easy for them are also easy for others. 😉 A study by David Dunning and Justin Kruger of Cornell University concludes: “The miscalibration of the incompetent stems from an error about the self, whereas the miscalibration of the highly competent stems from an error about others.”
Often when we’re bad at something we don’t even have the knowledge to know how bad we are. We witness this illusory superiority every day. 80% of men and women drivers surveyed in a study said they would rate themselves as above average drivers, lol. 😆 Boats become grounded when their captains overestimate their crew’s abilities. Confidence is good, but overconfidence can sink the ship.
Our financial situations can sink as well if we suffer from the Dunning-Kruger effect. Many of us lack the basic financial knowledge to even realize that we’re making mistakes. It’s this lack of understanding about things like the stock market, compound interest, and inflation that can lead us to erroneously believe we’re making the right decisions when in reality we’re only deluding ourselves and setting us up for potential failure.
Overconfidence is the most dangerous form of carelessness. And when it comes to our money we can’t afford to be careless. So learn something new everyday. An investment in knowledge pays the best interest, after all. Gain experience to combat ignorance. Become better at managing money. And in the meantime, heed the wise words of the ancient sage, Confucius: “Real knowledge is knowing the extent of what you don’t know.” 🙂
Random Useless Fact: