I’m not going to lie, I initially wanted to write about useful principles to keep in mind when developing web applications at scale. Nonetheless, every time I tried to put pen to paper I found myself thinking about the current state of the world… the war in Ukraine, high inflation, Mexican marines dying while hunting drug lords, the Sri Lanka economic collapse, amongst many other deplorable things.
Regardless, the more I thought about it, the more amazed I became that such things were taking place in 2022, a point in time where technology and living standards have never been so good and yet we appear to have never been so miserable. But as I kept pondering on the topic I realized that most of humanity’s problems tend to be cyclical in nature and are often rooted in two universal causes of human misjudgement: overconfidence and envy. As such, in this post and the next, I’ll try to make sense (mostly through a series of incoherent ramblings) of why such causes of human misjudgement should be avoided like the plague.
Overconfidence 🔗
Simply put, overconfidence is nothing more than a psychological condition caused by how easy it is for us humans to be fooled by randomness and ourselves. We often downplay low probability risks just because we have done something for a while and something bad is yet to happen. However, most car accidents happen within 5 miles of a person’s home and most work related accidents occur to the most experienced employees. Or for a more high profile example just look at what happened to the Archegos Capital family office, where Bill Huang managed to turn $200 million to $20 billion over the course of 7 years and in April of last year lost it all in 7 days. In essence, being 6 feet tall does not mean that you cannot drown crossing a river that is 5 feet deep on average.
The issue with overconfidence is that at some point it happens to all of us. And by all of us I mean you, me, Fortune 500 CEOs, generals, presidents, central bankers, and everyone in between. No one is exempt. However, the main problem occurs when overconfidence clouds the judgment of decision makers in top down hierarchical structures (such as governments, central banks, armies, and corporations) where the outcome of a given decision could affect millions or even billions of people around the world.
If you think about it, almost every single consequential event in recent history occurred as a result of overconfidence, from the allies Gallipoli campaign in World War I to the 2008 financial crisis, or more recently, global high inflation and the Sri Lanka economic collapse. In Gallipoli, the allies were sure they had superior military acumen and could easily overpower the Ottoman empire. In 2008, banks were sure everyone was credit worthy and thus could pay their mortgages. Last year, the Federal Reserve and the ECB were sure inflation was transitory. And as for the Sri Lankan government, they were just sure of way too many things that simply turned out to be completely wrong.
Most of the time, overconfidence shows up in two ways: through miscalibration and illusion of control. Miscalibration is simply believing you have accurate information when in fact you don’t, but make decisions as if you do. Illusion of control is nothing more than believing you can control things that are completely out of your control but move in accordance as if you could control them. When these two phenomena are put together, black swan events tend to catch us with our pants down. Howard Marks put it best when he said that “there are two kinds of investors, bold investors and old investors, but there are not bold and old investors”. Even though he made such a comment in the context of finance, I think it applies to every domain that requires making decisions in the face of uncertainty. If risks are not properly assessed relative to potential losses and gains, then they should not be taken. Remember that what doesn’t kill you does not make you stronger, but instead it usually kills those around you and de facto you simply appear stronger.
Now, since overconfidence is so dangerous, what can we do about it? Well, the antidote lies in what Tony Nadal, Rafael Nadal’s coach and uncle, said during a talk he gave with regards to useful principles he relied on to make Rafa the best tennis player in the world (or one could argue ever). Surprisingly, the first principle he talked about was to know that you are not good enough. This probably shocked most people. Not only because the best tennis player at the moment knew that he was not good enough, but because it goes against what we’ve always been told with regards to us needing to think we are amazing in order to be confident and have high self esteem. However, if you think about it, Tony Nadal is completely right. Knowing that you are not good enough aligns perfectly with always looking for ways to improve, covering your blind spots, and keeping your ego in check; or more succinctly put, to keep you hungry and humble. In addition, this attitude is very liberating because it removes all the pressure of having to live up to the expectations of being amazing. It allows you to make mistakes, battle test your assumptions, tinker around, keep an open mind, amongst many other things. On the other hand, if you are committed to the idea that you are already great, you will be forced to act consistently with such commitment. This leads to miscalibration, illusion of control, and consequently plenty of misjudgement. Ironically, thinking you are not good enough is what actually makes you better.