Lightning and tree

Confidence ≠ competence

We confuse competence with confidence. We mistake confidence for credibility.

An intriguing research finding…we view people who are confident as more competent (and more trustworthy). You learn this as a young management consultant. No “I thinks” or “maybes.” Sit up straight. Project your voice. If you say, “I think,” the client won’t believe you. And that’s probably true.

What’s interesting about this, though, is that confidence is, at best, a misleading indicator of competence. At worst, confidence and accuracy are negatively correlated. More confidence = worse accuracy!

Even knowing this, we have a difficult time separating the message from the messenger.

We want “high conviction” ideas. But most of the time that says more about the person presenting the idea than the idea itself. Over time, you learn to adjust. If someone is presenting the “deal of a lifetime” or “their best idea in years” to you every month, then you’ll learn to discount what they have to say.

In many situations, though, we don’t have enough interaction to calibrate (and even if we do, we often don’t adjust enough). Maybe they are indeed confident but are overconfident about their confidence*. Maybe they are highly confident but understand that few things in life are certain. Maybe they have zero confidence but they know that many are seduced by high conviction and are selling you a bill of goods. Or maybe they tend to be naturally tentative or quieter (or, conversely, naturally confident).

(With apologies to my investment banking friends, every deal cannot be a market leading, mission critical, highly engineered, recurring revenue company with a wide moat and outstanding management.)

Confidence is most misleading with noisy and long feedback loops (that sounds like investing to me). If your meteorologist (or weather app) says there’s a 90% chance of rain every day for a month and it NEVER rains, you’ll stop listening to her. If someone tells you an investment is the deal of a lifetime, you won’t know for years (and even if it is a 10x or a zero, you still won’t be able to separate the signal from the noise with a single data point**).

If someone says, “I think,” don’t discount what comes after. If they indicate uncertainty, that’s probably because there is uncertainty. There are very few “sure things” in life…except uncertainty…I think.

*I’ve not verified this, but I believe the most successful salespeople tend to be true believers. They’ve “drunk the Kool Aid” and believe in what they are selling (even if they shouldn’t).

**I’ve still seen many people raise lots of capital on the back of one or two successful deals. So, they probably know something that I don’t. Separating luck from skill is for another day.

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