Overconfidence Bias

Download Teaching Notes as PDF

Discussion Questions: Overconfidence Bias

 

1. Are you a better than average driver?

2. Are you more ethical than your fellow students or coworkers?

3. Are you satisfied with your moral character?

4. Have you known people who were unjustifiably satisfied with their moral character?

5. Do you think that strong character is necessary for ethical action?  Is it sufficient?  Explain.

6. What can you do to safeguard against being too confident in your own morality? 

 

Case Study: Approaching the Presidency: Roosevelt and Taft

Theodore Roosevelt, President of the United States from 1901-1909, embodied what many scholars typically refer to as the ‘stewardship presidency.’ In the words of Roosevelt, it is the president’s “duty to do anything that the needs of the nation demanded unless such action was forbidden by the Constitution or by the laws.” Under Roosevelt’s expansionist view, anything the president does is considered acceptable unless it is expressly forbidden by the Constitution or laws passed by Congress. Roosevelt believed he served the people, not just the government. He took many actions as president that stretched the limits of the executive branch, including the creation of national parks without regard for states’ jurisdiction and fostering revolt in Colombia to establish the Panama Canal.

On the other hand, William Howard Taft, President of the United States from 1909-1913, embodied what many scholars refer to as a ‘strict constructionist’ model of the presidency. Under this approach, unless the Constitution or Congress explicitly grants a certain power, the president does not have the right to act. In Taft’s words, “the President can exercise no power which cannot be fairly and reasonably traced to some specific grant of power or justly implied and included within such express grant as proper and necessary to its exercise.”

While Roosevelt expanded federal power in many areas, Taft felt many of these actions were legal overreaches. For example, as a “trust-buster” Roosevelt differentiated between ‘good’ trusts and ‘bad’ trusts, using his expanded powers as president to make this distinction unilaterally. He made a ‘gentlemen’s agreement’ with U.S. Steel and told them that the American government would not attack their corporation as a monopoly since he believed the company was working in the interests of the American people. Roosevelt did not, however, pass any legislation or make any binding orders to this effect. Taft took a more legalistic view and later, as president, directed his attorney general to file an anti-trust lawsuit against U.S. Steel. Roosevelt took Taft’s actions as a personal attack upon Roosevelt’s presidency and positions.

Although Taft continued many of Roosevelt’s policies, he was inclined to look at the facts of the situation and make a choice based on evidence. Roosevelt, on the other hand, was more inclined to do what he felt was “right.” Their disagreements, which hinged on the grey areas of the legal and the ethical, ultimately propelled the break within the Republican Party during the 1912 elections.

Please see PDF Teaching Notes for case study resources and citations.

 

Discussion Questions:

1. What differences do you see between Roosevelt’s and Taft’s views of their ethical responsibilities as president?

2. How did Roosevelt and Taft each negotiate the line between law and ethics?

3. Between Roosevelt and Taft, do you think one demonstrates overconfidence bias more than the other? Explain.

4. In the case of U.S. Steel, whose actions caused more harm: Roosevelt by making an informal agreement, or Taft by violating that agreement?

5. Whose approach to the U.S. presidency, Taft’s or Roosevelt’s, do you think is preferable in light of both legal and ethical considerations? Why?

6. Can you think of an example of another president or world leader whose approach to leadership is similar to either Roosevelt or Taft? How does this leader’s approach affect his/her political actions?

 

Author:

Shannon O’Brien, Ph.D.

Department of Government

College of Liberal Arts

The University of Texas at Austin

 

Additional Teaching Note

This video introduces students to concepts explored in more detail in several other Concepts Unwrapped videos on the Ethics Unwrapped website, as well as in the documentary In It to Win: The Jack Abramoff Story and its accompanying short videos.  Anyone who watches all or even a good part of these videos will have a pretty solid introduction to the concept of behavioral ethics.

Behavioral ethics is a new field drawing on behavioral psychology, cognitive science and related fields to determine why people make the ethical decisions, both good and bad, that they do.  Much behavioral ethics research addresses the question of why good people do bad things.

Behavioral ethics may be the “next big thing” in ethics education.  N.Y.U. recently asked Prof. Jonathan Haidt, whose research is a major part of the new learning in behavioral ethics, to create a behavioral ethics course there.  And John Walsh, who helped create the Office of Compliance Inspections and Examinations at the SEC, recently wrote in Corporate Counsel that the “ultimate promise of behavioral ethics…is that it provides pragmatic tools that have been demonstrated to work.”

A detailed article with extensive resources for teaching behavioral ethics may be downloaded here: Prentice, Robert. 2014. “Teaching Behavioral Ethics.” Journal of Legal Studies Education 31 (2): 325-365. An article discussing how behavioral ethics can improve the ethicality of human decision-making and actions may be downloaded here: Prentice, Robert. 2014. “Behavioral Ethics: Can It Help Lawyers (And Others) Be their Best Selves?.” Notre Dame Journal of Law, Ethics & Public Policy 29: 35-85. Lastly, an article introducing key concepts in behavioral ethics and approaches to effective ethics instruction — including sample classroom assignments — may be downloaded here: Drumwright, Minette, Robert Prentice, and Cara Biasucci. 2015. “Behavioral Ethics and Teaching Ethical Decision Making.” Decision Sciences Journal of Innovative Education 31 (3): 431-458.

A somewhat dated, but still serviceable introductory article about teaching behavioral ethics is Prentice, Robert A. 2004. “Teaching Ethics, Heuristics, and Biases.” Journal of Business Ethics Education 1 (1): 57-74; which is accessible through Google Scholar.

 

Additional Resources

Brooks, David. 2011. The Social Animal: The Hidden Sources of Love, Character, and Achievement. New York: Random House.

Dana, Jason, and George Loewenstein. 2003. “A Social Science Perspective on Gifts to Physicians from Industry.” Journal of the American Medical Association 290 (2): 252-255.

Jennings, Marianne M. 2005. “Ethics and Investment Management: True Reform.” Financial Analysts Journal 61 (3): 45-58.

Libby, Robert, and Kristina Rennekamp. 2012. “Self-Serving Attribution Bias, Overconfidence, and the Issuance of Management Forecasts.” Journal of Accounting Research 50 (1): 197-231.

Sharot, Tali. 2011. The Optimism Bias: A Tour o the Irrationally Positive Brain. New York: Pantheon Books.

Tugend, Alina. 2013. “When You Don’t Do What You Meant To, and Don’t Know Why.” New York Times, January 25.

 

Transcript of Narration

Written and Narrated by Professor Robert Prentice

Good character can be undermined by overconfidence.  David Brooks wrote in his book The Social Animal that human minds are “overconfidence machines,” and the psychological literature bears that out.  A substantial majority of people believe erroneously that they are better than average drivers, more likely to be able to afford to own a house than their peers, and more accurate eyewitnesses than most other people.

Entrepreneurs like Bernie Ebbers of WorldCom and Richard Scrushy of Health South, who built small, obscure companies into economic powerhouses, may gain a sense of invulnerability through a series of successes.  Their minds underplay any role that luck had in their success.  Indeed, a 2012 Empirical study indicated that overconfident executives with unrealistic beliefs about their future performance are more likely to commit financial reporting fraud than other executives. Essentially, they are more likely to get themselves into predicaments where committing fraud seems the only way to deliver on their promises.

People’s irrational overconfidence also applies to the ethical correctness of their acts and judgments.  In one survey, more people thought that they would go to heaven than that Mother Teresa would!  Other individuals surveyed reported that they were twice as likely to follow the Ten Commandments as other people. In fact, 92% of Americans report that they are satisfied with their own character.

This same overconfidence manifests itself in the work place where impossibly high percentages of people believe they are more ethical than their competitors and coworkers.  In one study, 61% of doctors believed that the “freebies” given out by pharmaceutical companies affected the judgment of other physicians, but only 16% believed that their own judgment was similarly affected.

Most of us simply assume that we are good people and therefore we will make sound ethical decisions.  This overconfidence in one’s own moral compass can lead us to make decisions without any serious ethical reflection. When hints of the Enron scandal first began to appear in the press, Enron employees’ overweening confidence in the competence and strategies of their company, often named the “most innovative” in America, caused them to express surprise and indignation that anyone would question the ethicality of many of the firm’s actions. Any outsider who questioned Enron’s tactics or numbers was told that they “just didn’t get it.”  That’s ethical overconfidence in action, and it’s part of the reason that Enron no longer exists.