While managing their finances, individuals can make it a rule to seek advice from an expert or feedback from a trusted colleague or friend.
It's Saturday evening and I am scrambling to finish this article before bedtime.
I was confident I would finish it during working hours, but some last-minute calls and eleventh-hour research ensured that this task got prolonged.
This happens to me every time I have an important deadline.
Despite repeated failures on this count, I somehow continue to remain confident about beating the deadline comfortably each time.
Humans, in general, are overconfident, excessively optimistic, and regard themselves as superior to others. Why do I say this?
Ask anyone with a driving licence to rate their driving abilities, and most people will tell you they are above average.
Something similar is observed when you ask people to assess their intelligence, attractiveness, or level of kindness.
This trait of overconfidence in humans is favoured by evolution. In his book, The Folly of Fools, the eminent but controversial evolutionary scientist Robert Trivers provides an intriguing explanation for this trait.
Deceiving potential mates offered an initial evolutionary advantage to those who excelled at it.
In turn, those who were better at detecting deception had an advantage, triggering an evolutionary arms race between deception and detection.
Next, self-deception evolved to mask deception better: hiding the truth from oneself to hide it more deeply from others.
Once overconfidence (or self-deception) becomes a favoured trait, it extends to all aspects of life.
Fortunately, the overconfidence trait does not extend to life-threatening situations.
None of our ancestors were overconfident about facing a sabre-toothed tiger with their bare hands.
The world we inhabit is very different from the one our ancestors lived in.
In their world, a single individual's actions could not impact the entire globe.
But in today's world, it boggles one's imagination to think of the damage that can be caused by overconfidence in people responsible for nuclear safety, air safety, international relations, war, and markets.
Overconfidence can be dangerous even among people who can't cause global damage.
It can be dangerous for their families and for them.
Individuals who trade in derivatives on the Indian stock markets are a good example.
A study by the Securities and Exchange Board of India (Sebi) shows that more than 90 per cent of individuals dealing in derivatives incur losses.
Nonetheless, many individuals persist in their overconfidence that they will be among the 10 per cent of minority investors who make money.
Similarly, many professionals neglect their retirement finances, secure in the belief that they will manage somehow in the future.
Is there something that can be done to mitigate the harmful impact of this trait? Awareness of this bias is the first step.
Institutional checks and balances are created to ensure that a powerful leader's overconfidence does not end up harming the entire organisation.
Good leaders are aware of this bias and seek feedback and advice before making important decisions.
Similarly, individuals need to be aware of this bias and should apply checks and balances on themselves in crucial matters.
While managing their finances, for instance, individuals can make it a rule to seek advice from an expert or feedback from a trusted colleague or friend.
They should also diversify their investments, create a financial plan, or develop a long-term rule-based strategy to manage financial matters.
As for me, I have given up my overconfidence regarding article deadlines and reconciled myself to sending them just as the hard deadline nears.
I would love to receive feedback on how overconfidence has affected your life.
Harsh Roongta heads Fee-Only Investment Advisors LLP, a Sebi-registered investment advisor
Feature Presentation: Aslam Hunani/Rediff.com
