Are You Dangerously Overconfident?

Overconfidence can turn 2020 habits into 2021 traps.

Image credit: olaser | Getty Images

Understanding the effect in question

In 1999, psychologists David Dunning and Justin Kruger published a groundbreaking paper, “Unskilled and Unaware of It,” in which they demonstrated that people assume they are more knowledgeable or talented than they actually are, in a number of domains. In other words, we all overestimate our skills or expertise in some way. But Dunning and Kruger went further to point out that the more unskilled you are, the more likely you are to overestimate your abilities.

Overcommitting and over outsourcing

In my opinion, the biggest Dunning-Kruger threat for small business owners is that we often take on new challenges that we don’t have the skill set for, instead of hiring specialists and outsourcing tasks to experts. As the founder of The Doe, I felt a confidence that I knew how to handle most aspects of the company I had created. But bringing in talent to focus on product creation, UI development and social media has only demonstrated that I was right in realizing that I did not have the specialized knowledge I assumed I had.

Forgotten elders

With so many of us tucked away in quarantine for almost a year, it has been harder to stay connected to co-workers, creative partners and professional mentors. It is easy to forget that young entrepreneurs can learn a lot by picking the brains of older colleagues and friends who can describe lessons learned from previous mistakes. Dunning-Kruger often encourages us to ignore others who remind us that we don’t know as much as we want to believe, and 2020’s social isolation made that even easier.

Beginner’s luck and Robinhood

So many of us put business plans on hold in 2020, until our industries rebounded; but our boundless energy motivated us to grow our capital while waiting. With the massive growth of commission-free trading, new amateur-trading platforms like the now maligned Robinhood, and a clear market bottom in March 2020, a significant number of young entrepreneurs used 2020 as a chance to invest business funding into the stock market and multiply their seed money. These success stories could could continue to turn tragic, as 2021 continues, if these entrepreneurs get too distracted by the siren’s call of a hot market.

2021 offers a chance to evaluate your talents… and limits

As a young entrepreneur myself, I have always argued that self-reflection is a necessary step in being a great leader. One of the most important processes for successful self-reflection is honestly evaluating what we are good at and where we do not possess expertise. Being aware of the Dunning-Kruger Effect, especially as it pertains to bad habits we might have picked up in 2020, allows us to avoid its pitfalls and traps.

Milan Kordestani is a 21-year-old serial entrepreneur whose most notable startups include Guin Records, Dormzi, and The Doe.

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