Literature Review
At the intersection of skill and ability sits competency, and its inverse, incompetency. The sum of a persons’ education, capacity, and experience determines whether we are good at something, or poor at something. Unfortunately, humans struggle with judging their expertise; often inflating their expected performance in fields which they are inept, and cheapening their performance in fields in which they are experts. The phenomenon, known as the Dunning-Kruger effect, has implications on how businesses operate, as well as how investors grade and rank corporations. David Dunning and Justin Kruger’s eponymous effect was first tested in their 1999 study “Unskilled …show more content…
It behooves investors and managers then to ensure that firms implement policies and foster culture designed to reduce the Dinning-Kruger effect. Subsequent studies found that education of poor performers improved not only their outcomes on tests of ability, but also their metacognitive ability to recognize their own incompetence (Dunning, 2011) which narrows their overconfidence. Imagine someone who has driven for many years but never opened the hood of their car; they might think of themselves as expert on cars, but upon peering into the engine bay for the first time realize that the scope of knowledge required to be an automotive expert is larger. A minor investment in exploration into a field returns an outsize decrease in overconfidence. A firm might accomplish the same through a management rotations program where new employees rotate through different departments. No one expects the employee to become a financial or manufacturing expert after a six month rotation in that department, but they can better appreciate the depth of knowledge of the experts in those …show more content…
A culture of cross-discipline cooperation and collaboration could also mitigate the Dunning-Kruger effect by encouraging staff to make decisions with consultation rather than in isolation. Conferring with an expert would certainly be a way to rank your own competency in an area and might mitigate overconfidence. Pairing staff with mentors early on might also help new employees better ascertain and rank their skill relative to other staff in the organization. With more frames of reference about the competency required for good decision making, staff have the opportunity to eliminate their own