The Dunning-Kruger effect describes a cognitive bias where people with low ability in a task overestimate their ability to perform that task well. Consumers or businesses that do not possess the requisite knowledge make bad decisions. What’s more, knowledge gaps prevent the person or business from seeing their mistakes.
- Understanding the Dunning-Kruger effect
- The Dunning-Kruger effect in business
- Addressing the Dunning-Kruger effect in practice
- Dunning-Kruger effect examples
- Key takeaways:
- Connected Business Frameworks
- Ansoff Matrix
- Five Product Levels
- Growth-Share Matrix
- Ansoff Matrix
- Blitzscaling Canvas
- Business Analysis Framework
- Gap Analysis
- Business Model Canvas
- Lean Startup Canvas
- Digital Marketing Circle
- Blue Ocean Strategy
- Balanced Scorecard
- PEST Analysis
- Scenario Planning
- SWOT Analysis
- Growth Matrix
- Comparable Analysis Framework
Understanding the Dunning-Kruger effect
The Dunning-Kruger effect was first coined by psychologists David Dunning and Justin Kruger in 1999. They argued that the scope of a person’s ignorance is often invisible to them – particularly in fields where they are underqualified. Dunning and Kruger called this meta-ignorance, or ignorance of ignorance, which can lead to individuals overestimating their abilities.
This ignorance also extends to other people. A person who is ignorant of their shortcomings may simultaneously believe their ability is superior to others. This is in direct contrast to a person with true ability in their chosen field. With increased knowledge, they are humbled by how much they are yet to learn. Indeed, the only way that an ignorant person will acknowledge their lack of ability is when they are alerted to the fact through education.
The Dunning-Kruger effect in business
The Dunning-Kruger effect can also affect businesses, particularly when new products or concepts are introduced into the market. For example, the introduction of digital currency and blockchain technology resulted in the rapid formation of many new entrepreneurial companies. Unfortunately, many lacked the required knowledge and awareness to understand their mistakes before they impacted their viability.
This initial overconfidence can also affect businesses that are unwilling to take the educated advice of other professionals. Legal representation, accounting, and financial planning are tasks that some businesses attempt to save money on because they genuinely believe they have the required skills. Of course, the consequences of doing so are often financially disastrous.
Addressing the Dunning-Kruger effect in practice
Since individuals and businesses are largely ignorant of the Dunning-Kruger effect, it can be helpful to pause and reflect during day-to-day decision-making. The following points may help stop the effect before it inflicts further damage.
- Evaluate all company processes critically. In other words, is there a better, more efficient, or more economical way of doing things? Would a change in supply chain management yield higher profits? What about a change in payroll systems?
- Consider workplace culture. Managers should put themselves in their employee’s shoes and assess what kind of leadership they provide. Are they approachable, reasonable, fair, and open to solving problems? Would a leadership course broaden their leadership skills?
- Evaluate the business-to-consumer relationship. Businesses should ask themselves what they are like to work with from the customer’s perspective. Is online and offline communication professional and attentive? Does the business listen to and implement customer recommendations?
Ultimately, the Dunning-Kruger effect can be overcome with humility and critical thinking. Businesses and individuals who challenge their assumptions will at worst come away better equipped to improve themselves and their processes.
Dunning-Kruger effect examples
Here are some more examples of the Dunning-Kruger effect in action.
Earlier we noted that the effect caused some individuals to believe their performance was superior to others when the opposite was true. This tends to be most associated with one or two employees in a work environment who believe they are better than everyone else.
However, the effect can also impact leadership and cause those in senior positions to misjudge employee performance or their ability to lead. Indeed, in a University of Nebraska study, it was found that 68% of the faculty rated themselves in the top 25% in terms of teaching ability while 90% believed their ability was above average. These mathematical impossibilities demonstrate the power and prevalence of the Dunning-Kruger effect.
In a National Financial Capability Study conducted in 2012, the United States Treasury found that 23% of the 25,000 participants were recently declared bankrupts who believed they possessed superior financial knowledge.
The Dunning-Kruger effect also impacts employee productivity. Some individuals create daily task lists that are beyond their capabilities and cannot possibly be completed in a single day.
This is caused by the employee overestimating their abilities with a general belief that they need less time to finish their tasks than they actually do. Productivity then decreases as they become disheartened and overwhelmed by their perceived predicament.
Various studies have also investigated the link between emotional intelligence and the Dunning-Kruger effect. In a 2013 study published in the Journal of Applied Psychology, Dunning together with Oliver J. Sheldon and Daniel R. Ames analyzed emotional intelligence across three studies involving professional students.
The researchers found that the least-skilled students had limited knowledge of deficits in their performance. They were also the most likely to criticize the accuracy or relevance of feedback that could help them improve. The top performers in the studies were the individuals most motivated to improve their emotional intelligence after receiving feedback.
Humour, logical reasoning, and English grammar
Dunning’s original study in 1999 focused on 84 Cornell University students and how they perceived their abilities in humor, logical reasoning, and English grammar.
To assess grammar ability, for example, the students completed a test to assess their knowledge of American Standard Written English (AWSE). Those who scored lowest tended to overestimate their ability to use grammar correctly. They also overestimated their final test score. On the other hand, those who scored the highest in the grammar test tended to underestimate their ability and test score. These results, as we have learned in the prior examples, have been replicated many times over subsequent years.
- The Dunning-Kruger Effect describes the phenomenon in which low competence individuals or businesses cannot recognize such incompetence.
- A core component of the Dunning-Kruger effect is meta-ignorance, or ignorance of one’s ignorance. This leads to an overestimation of ability and in some cases, an underestimation of the abilities of others.
- Critical thinking with the goal of improving is the best way to overcome the Dunning-Kruger effect.
Connected Business Frameworks
Read: Balanced Scorecard
Read: Pestel Analysis
Read: Scenario Planning
Comparable Analysis Framework