This originally appeared on Forbes on March 24, 2024.
According to new research out of HEC Paris, 83% of business decisions are based on a very optimistic assessment of leaders' own attitudes, which is the result of their own beliefs and an overestimation of what the most likely outcome is going to be. People tend to be overconfident in their abilities to handle unknown situations, which has implications for companies navigating an uncertain environment. For example, imagine a CEO who is considering the acquisition of another business and is faced with ambiguity and uncertainty — overconfidence can lead him or her to the wrong decision.
One of the study's authors, Dr. Mohammed Abdellaoui, says, "You can think of overconfidence like overestimation; namely, this occurs when an individual overestimates their own abilities relative to a benchmark. You need to have a benchmark to have overconfidence."
Another type of overconfidence in the workplace is overplacement. "This is where you think of yourself as better than others in terms of performance and in terms of other qualities," says Abdellaoui.