David Dunning: Recognize that you're never going to know yourself. Sorry, it’s not going to happen. You'll know yourself better. Remember, as you grow older, you are a changing person so there's a different self to know. This has encapsulated by an old saying, “The master becomes a master the day they realize that they're going to be a beginner for the rest of their life.”
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Patrick Baldwin: Pauly G, we made it. Episode 100.
Paul Giannamore: We are back into production season, Patrick. We took a little time off but here we are and we’re going to start kicking them out. Quite frankly, I'm excited about episode 100. You brought in a phenomenal guest from my past so to speak and here we have it.
Patrick Baldwin: He didn't have a lot of bad things to say about you either, which I was disappointed.
Paul Giannamore: I was never in Professor Dunning’s class. We had another professor, Justin Kruger, who he worked with. I was not in their class but I was in their experiment. I was talking to my wife about it and she wants to know the results. The next time I talk to him, I'm going to see if he's able to go back from 1998 and 1999 and figure out if I was one of the test subjects that failed. Before we get into that, we should have a conversation about what it is we're going to be doing.
Patrick Baldwin: We did bring Mr. Seth Garber back. Sethy G, welcome.
Seth Garber: Thanks for having me.
Patrick Baldwin: You've had a chance to listen to this once. Did you listen to this one time?
Seth Garber: I was floored by this whole thing. I listened to it once and listened to it again. I listened to it 3 times, 4 times, and then a 5th time. There are a couple of moments and learning where you go and you listen to things and you have 1 or 2 little takeaways and you can implement them. This is the first time in a long time that I felt like I listened to something that potentially might change my entire path and my learning experience and how I decided to communicate with others. I found it to be a powerful topic. I've already spoken to a couple of my friends about how neat this pod was.
Paul Giannamore: I'm excited to hear that you liked it. The background on this is Patrick tracked down Professor David Dunning. The origin story of this podcast is that a few years ago, Patrick and I were having a discussion and I mentioned the Dunning-Kruger effect, which is in the cognitive bias canon now. He's like, “What the heck are you talking about?” I told him about a paper that was written in 1999 by two Cornell professors.
It just so happened that I was in the experiment base. These guys went out and recruited 300 or 400 Cornell students and ran some psychological experiments on us. I was one of the test subjects. How did it go, Patrick? We were talking about Dunning-Kruger. I mentioned it in a paper I wrote. I talked about it on maybe an episode or two on the podcast. You started researching it.
Patrick Baldwin: Lo and behold. I found an article that was published in the PCT magazine back in 2015. You wrote about the Dunning-Kruger effect in terms of M&A. You touched on the virtual conference even before that.
Paul Giannamore: I don't remember the article in PCT. I have to look that up. I referenced the Dunning-Kruger effect quite a bit. Before we get into this, I wanted to describe it for our audience because going right into the interview, it might be a little bit difficult to unpack that. Adam Grant, in his book, Think Again, talks about the Dunning-Kruger effect quite a bit. I haven't read this book but I did read his description of the Dunning-Kruger effect in the book.
What he says is professors Dunning and Kruger have found that, in many situations, those who can't don't know they can’t. According to what's now known as the Dunning-Kruger effect, it's when we lack competence that we're most likely to be brimming with overconfidence. In the original Dunning-Kruger studies, people who scored the lowest on tests of logical reasoning, grammar, and sense of humor had the most inflated opinions of themselves and their skills.
They tested 400 or 500 of us and those of us who scored the worst in a variety of different areas were also the most overconfident in our skills. Patrick, I don't know where I landed on that spectrum. Let me ask you, on the humor part of the test, how did I rank myself, high or low? What's my competence in that scope, Patrick, over 22 years later? Do we know? Care to venture a guess? Should we get the primary documents?
Patrick Baldwin: We need to get the real results.
Paul Giannamore: I'm going to try to track those down. In a nutshell, that's the Dunning-Kruger effect, which unfolded into a fascinating discussion with David Dunning.
Patrick Baldwin: I don't want to give too much away. I'm excited to get into this one. Here we go, episode 10o. Why don’t we step into the boardroom with Dr. David Dunning?
Paul Giannamore: Let's do this, Patrick.
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Paul Giannamore: Professor David Dunning, welcome to the Boardroom Buzz.
David Dunning: Pleasure to be here.
Paul Giannamore: I noticed that you're not wearing the juice today because I can see you on camera.
David Dunning: I do have reflective skin so it's hard for me to be invisible.
Paul Giannamore: This is a huge treat for our audience. Patrick tracked down Professor David Dunning, a former professor at Cornell where I graduated. Years ago, I stumbled upon one of his papers when I was doing some research and realized that I may have inadvertently been a test subject based on some questionnaires that these guys passed around back in the ‘90s. It‘s over 25 years ago now, David. You look quite good.
David Dunning: Thank you.
Paul Giannamore: For 2022, you look much younger than I thought you would look. The Dunning-Kruger effect has now almost become a household word. I want to start this discussion and I want to hear right from you. Talk a little bit about your background and how you and your colleagues got involved in this.
David Dunning: I got involved in this because the topic in my research lab has been how well we adhere to the old Greek ancient admonition to know thyself. Do people know their competence, their character, and their prospects? We look to see when people are good at it and there are times when people are quite good at doing it themselves but a lot of times in a lot of circumstances, quite significantly, people don't. We try to find barriers to why people don't know themselves.
In the course of this in the ‘90s, I became interested in the fact that a lot of people came into my office or said things on television or on the radio or whatever that sounded wrong, crazy at times. I wondered, “Don't these people know what this sounds like? Don't they know what the outside world is going to make of this?” I was intrigued by the idea of how much insight we have when we’re making errors or when we're off the straight and true track.
In the mid-90s, Justin Kruger came into my office and said he wanted to work on a project and I said, “I have this high-risk reward idea, which is I want to know what people are doing poorly. People are giving you wrong answers. People aren't seeing things right. How much do they know? How much do they suspect? How much do they have doubt?” That's when the research program was born.
Paul Giannamore: You started researching this particular topic. Probably when you started researching, it was never suspected that you and Professor Kruger would write a paper entitled Unskilled and Unaware of It. You do a variety of tests. You had a bunch of guinea pigs running around back in the ‘90s.
David Dunning: All of them were college sophomores. That's correct.
Paul Giannamore: You tracked down hundreds of different students. You run some tests so to speak on them. Your famous paper is Unskilled and Unaware of It: How Difficulties in Recognizing One's Own Incompetence Lead to Inflated Self-Assessments. I remember reading a comment that you made. I don't remember where I read it. You and Professor Krueger were entirely shocked that it was even published, to begin with.
Now, you could pick up scores and scores of popular business books and pop psychology books and you're referenced. It's interesting where this has gone for you guys. You've got a lot of these different guys who spent all this time researching cognitive biases. Some of these guys win Nobel prizes. It's rare to have a cognitive bias named after yourself and here you two are. Let's talk a little bit about the findings of your research. What did you guys ultimately come up with?
David Dunning: We decided to do the simplest studies possible to begin, which is we have students that we're testing and we'll give them tests and ask them how well did they do, how many did they get right, and how they stack up compared to everybody else taking the test. We gave them tests on mundane things that should be in their wheelhouse, they should know, grammar and logic.
It went a little bit more socially oriented, which was the sense of humor. Can you spot the funny jokes and tell which jokes aren't funny? We chose it because it's social but also, we wanted an area where you couldn't say these are Cornell students who have been chosen for this ability. Believe me, Cornell students aren’t chosen for their sense of humor. I'm not saying they're anti, they're in the middle.
We looked at people's ratings of their performance and their ability compared to what they were doing on the test. This is the shocking part. What we discovered is there was a slim relationship between how well people did and how well they thought they did. In the main, everybody overestimated themselves. That's not a surprise. It's well known in psychology. If you ask people, how healthy you are, how good a driver you are, and how ethical you are, are you a good leader? The average person says that they're way above average. That can't be, mathematically, at least the way we test it. Some people will say, “We can.” It’s not the way we tested.
There have been very few times in my research career where this has happened but what surprised me is we looked at the original data output and people who are doing badly were a little less confident than people doing well. People at the bottom might be performing in the 11th or the 12th percentile. That's the percentage of people they're beating out of the test. They think they're in the 60th or 65th percentile on average. They had little insight into it. That was the finding that became famous, though there are a number of findings in the paper.
If you ask me, what's the Dunning-Kruger effect? I will say it's a number of different things. The one that the effect is known for is the fact that people doing badly, being experts, and being not knowledgeable have little awareness of their lack of knowledge in a lot of different areas of life. Not every area of life but a lot of different significant areas in life like financial literacy, being a good parent, and knowing how to deal with medical issues. People who don't know think they know enough and they don't recognize the depth of their deficits.
Paul Ginnamore: When you think about the broad spectrum of an array of cognitive biases, you can think about things as basic as the anchoring effect. According to Kahneman and Tversky, if we realize that the anchoring effect is real and exists, there are certain things that we can do to potentially counteract that. In relationship to the Dunning-Kruger effect, what is it that we can do as people to realize that we don't necessarily have the skills that we believe that we have in certain domains?
David Dunning: The thing to remember first is that every decision we make is the most reasonable decision we think appears before us. We're fairly confident in our decisions. Because we weren't confident in that decision, we wouldn't be going that way, we'd be going another way. The basic problem we have is that we're pretty confident in our right decisions but we're pretty confident in our wrong decisions because they look the most reasonable. That's the blindness that we face. That's the problem that we face.
There are two possible ways, maybe three, to deal with that. One is to become more competent and become more expert. You don't have a problem with wrong answers if you are less likely to produce them. That's number one. Number two is we may make errors and other people may make errors but their errors tend to be different.
When a decision is consequential, asking another person may do a lot in helping us with our errors because we can't spot our errors. We can't spot where we're in an area where we don't know what we're doing. Other people have a better chance of that. We have a better chance of informing them of their errors before they make them. Maybe the third thing that a person could do is when trying to come to a decision, we rarely stop and ask, “How can we be wrong?” We don't ask that question.
There are many different types of exercises you can do to think through, “How might I be wrong here?” Doctors do this as part of their work. They don't diagnose an illness. They do differential diagnoses. They think of various alternatives and try to rule out ways they could be wrong as well as potentially rule in a diagnosis that seems most likely but they do consider alternatives. The last thing we can do is ask ourselves the question explicitly, “What don't I know here?” Don't neglect the idea that there may be things you don't know and you should be thinking about, “What is it that I have no clue about?”
Paul Giannamore: It's interesting that you raise the topic of doctors. I remember years ago when my father was diagnosed with prostate cancer and it was in pretty advanced stages. We started to do what everyone does, you get on WebMD. You're online and you're on Google. It’s the worst thing that you could do when you're trying to do self-diagnosis and self-treatment plans. We tried to do some research.
I remember going through this over the years with him. The more doctors I spoke to, the more I got into it. The more I realized at the onset, we believed we had a good grasp of it and realized we were entirely wrong about so many things. When you sit back and you think about the diagnoses that doctors make, it's almost against human nature. We have a lot of confirmation biases. We're looking for things to confirm as opposed to looking to negate something.
I remember having discussions and they did some scans and there was no evidence of disease at a particular point in time. I remember my mother was super excited and I started to think to myself, “No evidence of disease is different than evidence of no disease.” I remember having these discussions. My mother was looking at everything to confirm in her mind that there was no disease and the doctors were like, “Because we haven't found evidence of it, it doesn't mean we've proven that there is no disease.”
In the discussion that you and Professor Kruger have in the paper, what was interesting to me is that the Dunning-Kruger effect can effectively mean a variety of different things because there were multiple findings in the paper. How I got pulled into this is I was giving a lecture at INSEAD and I like to focus on cognitive biases in the context of M&A transactions. Before I was giving a lecture, one of the things that popped into my mind is, how is it that businessmen can judge the competence of advisors? How do you judge the competence of an investment banker if your entire life you're running a business and don't deal with investment bankers? You don't deal with lawyers. You don't deal with accountants.
You two have a discussion in the paper. To be able to determine if somebody writes with proper grammar, you have to understand or be competent or be a grammarian. You have to understand what it is that you're looking at. When you start to take the Dunning-Kruger effect in the areas of judging the competence of others, is there anything that you guys have discovered over the years that could help us do that? Is it similar to what you mentioned, talking to other folks? How do we deal with things like that?
David Dunning: Two different answers. The first answer is, especially with something significant, don't look for a guru and look for several gurus. What's the consensus? What do multiple people say? When people say, “How do you spot the best expert?” I say, “Simple, make it 2 or 3 if you have the time and if the decision is important enough.” There is an issue that if you don't have complete confidence, it's difficult for you to spot the person who does have complete confidence.
We have studies not published yet showing that those who don't know really don't know who does know in any of the answers or any of the people that they see in front of them. This is a general problem because one aspect of the Dunning-Kruger effect is you don't necessarily have the competence to recognize someone whose competence exceeds your own. It means the people who are tiptop and competent are undersold because no one recognizes how good they are. Some of them are recognized but there are a lot of people who are misrecognized.
The one technique that might work again, this is dealing with the multiple, is people may be bad at identifying the highly competent but they're good at identifying the incompetent, maybe not within themselves but they can in other people. Disregard people that other people, in general, are saying, “Don't listen to them.” Call your advisor into the people who are left and you have a better shot at finding out who knows what they're talking about.
Paul Ginnamore: Patrick, I see you over there. Is there a question bubbling up in your mind?
Patrick Baldwin: Too many. I’m getting in the business. I've been in the business for over fourteen years in this industry. How can I learn more about psychology and working with teams and being a leader and taking that every day into work?
David Dunning: It is interesting. Education often is key. The business school, for example. There is an advantage to education over experience because experience is haphazard and you learn some things. With experience, sometimes you learn the wrong lessons. Education itself is key. The trick is figuring out, “What do I get educated in?” Business is complex. There are many different sectors and industries. The skills you need can be quite different. If you're any good, you're going to be bumped up into a position you weren't trained for anyway.
One of the things I once told a class of engineers, and the class was called engineering in the real world, was that if you're any good at your job, the dirty little secret is you're going to be promoted into something that's no longer engineering. It's going to be managing people. It's going to be getting projects done. It's going to be identifying goals. No one's going to tell you that so let me tell you that.
Those are soft skills. They're ill-defined tasks but they are areas in which you can become more educated. I presume anybody reading this already knows that. For those few who dismissed the soft skills, let me mention that if you're already good, soft skill is all you're going to be doing as you move up the chain.
Patrick Baldwin: A lot of it has to do with self-awareness. You said, “Know thyself.” Where do I start with that? You're talking about ways to increase competency, getting others’ opinions, and stop and ask, “How might I be wrong? What don't I know here?” Is this a daily brain exercise? Is it self-affirmations? Paul's library is a lot bigger than my minuscule library. How do I structure that to get to know thyself on a regular basis?
David Dunning: It depends on the person, their needs, their tasks, their career, their home life, and their family. There's no one size fits all but there are two sensibilities that are helpful. One is to recognize that you're never going to know yourself. Sorry, it’s not going to happen. You'll know yourself better. Remember, as you grow older, you are a changing person so there's a different self to know.
This has encapsulated by an old saying, “The master becomes a master the day they realize that they're going to be a beginner for the rest of their life.” That means you want to work on it but don't assume you're ever going to get there. Make it a destination you'd like to get to. You're never going to get there but you're going to enjoy the ride.
The second sensibility is not to become paralyzed with the ideas, “I'll never know what my true skills are,” and so forth. Don't become paralyzed but do become more humble in the sense of being able to recognize or at least contemplate the possibility you might be wrong or things may have changed and you need to change with them. Be more accepting or enthusiastic about that.
Certainly, that's the attitude I've adopted in my own life, which is if I'm wrong about something, I try to go, “I'm wrong. No big whoop. It won't be the last thing I'm wrong about. It won't be the first thing I'm wrong about.” It's to remember that life is a developing process and knowing ourselves is one that goes along with it.
Patrick Baldwin: Another term I came across was this intellectual humility. Is there a sense of a true and a false sense of humility when it comes to this?
David Dunning: When it comes to intellectual humility, there certainly is a false sense of, “Of course, I'm humble.” That's what many people do and then you don't do anything about it. Intellectual humility is to take seriously other people's points of view, at least initially. We now live in a fractious world. We're politically polarized and so forth. We may dismiss what a person is saying but we should start with dismissal.
When discussing how to approach a problem like a health problem in the family, it is good to at least listen to what other people say and consider what other people say. At least in American culture, we prize not only knowing the right answer but knowing you know the right answer immediately. Listen to other people, consider alternatives, and think your way through it.
Patrick Baldwin: You touched on a polarized society. I don't travel like Paul in terms of my universe of what I take in and news media and spending all my time in Texas. As a polarized society, I don't know if that's commonplace across the world. Is there a solution to this? I see more and more becoming more divisive. You're 100% in one camp or you're 100% in the other. There's no bell curve there. Is there a solution for that?
David Dunning: I read a lot of political science to see what they suggest. They always get to this point and then don't suggest anything. The real question is I don't know. By the way, there's lots of data showing, especially in the United States but true around the world, that there's more political polarization going on relative to 20, 30, or 40 years ago. That's a statistical fact.
The nature of polarization has changed. Polarization used to be about your thoughts on issues. Now, it's more emotional. People are more willing to say they hate the other side, they fear the other side, and the other side is going to be the death of our society. “I'll never let my children marry a person from the other side,” that used to be non-existent. Now, there's a plurality of people who say that.
The thing I don't know and no one's told me the answer yet is whether this is an aberration. There's a chance to get back to normal or this is normal and 30 or 40 years ago, it was abnormal. There's a case that can meet be made that the 20th century was weird because so much of the world was destroyed in the middle of it.
I'm going to punt on your question because I truly would love the true experts to weigh in. The one thing I will note, however, is that one of the hallmarks of misinformation that works is it plays on your emotion. If someone is making an explicit play on your emotion, trying to make you angry or trying to make you mad, be wary. That tactic or that framing they're using might be deliberate.
Patrick Baldwin: Going back to intellectual humility, is it possible to have too much intellectual humility? I don't mean to answer my own question but what if I'm always asking other people's opinions? Isn't there a problem with that?
David Dunning: The issue with thinking about yourself, consulting other people, and getting multiple experts to things that you might be wrong is that it sure is time intensive and energy draining. You do have to always ask, “Is it worth it?” You don't want to do it every single time. “Do I get the peach preserves and the blueberry preserves on my toast?”
Patrick Baldwin: That’s easy.
David Dunning: Easy for you. There are some decisions that aren’t worth but there are other decisions where we don't have much experience because they come a few times in our lives. We don't buy that many houses. We don't choose many careers. We don't choose to have a child every other week. Those are different decisions and ones where we might be the least expert because we don't get much experience with them. There certainly isn't training in a lot of those things. You can overdo it. You can exhaust yourself from being humble. You have to pick and choose. Is it worth being humble and when is it better to make a decision and live with it?
Paul Giannamore: Dr. Dunning, I have a question here for you. Even at this many decades, in addition to what you and Dr. Kruger have focused on with regard to competence, self-awareness, and all those things, what other areas have you focused on over the years in terms of research?
David Dunning: We focus on a number of topics. The topic we haven't gotten into is the topic of self-deception. Actively fooling yourself into working hard to reach a conclusion you want to reach is a conclusion that might be the best and most accurate conclusion. Motivated reasoning is the term used in psychology and elsewhere in academics. It's rationalization. It's being defensive. It's wishful thinking.
Paul Giannamore: Is it willful blindness to a certain degree?
David Dunning: It can be willful blindness. In the way we've always talked by the way of the Dunning-Kruger effect, the Dunning-Kruger effects are the issues and the problems that you have before you get to the issues and the problems that wrap around willful ignorance, self-deception, or wishful thinking. Part of the lab is informational, “Do you know what you're talking about?” That's Dunning-Kruger. Half of the lab is about actively deceiving yourself, which I would not discount as a powerful force in the world simply because we've done work showing that wishful thinking can even affect your vision, what you see out in the world, and how far something looks like it's away.
If we take some chocolates and show them to you, they look far closer to you than if we take those same chocolates unbeknownst to you and mold them into the shape of feces, suddenly, they look far away because you don't want to be anywhere near them. Our perceptual system is engaged in wishful thinking as well as everything else. That's a grand part of what we've been doing in my lab.
Paul Giannamore: How would you define almost a deliberate self-deception? Are you knowingly deceiving yourself?
David Dunning: It's an interesting question, are we aware of our self-deception? It's a controversy in research. To what extent do we know we're engaged in wishful thinking and self-deception or not? One true fact I do know is we're much better at spotting self-deception and other people than ourselves. That is one answer to that question. Part of the reason we did the vision work is vision is vision. Vision involves the brain doing things before anything ever enters the consciousness. By definition, you don't know. We've tested it and people don't know that they're seeing what they want to see, for example.
There's a lot of deception we do that we don't know. In fact, how could it work otherwise? If you know you're deceiving yourself, are you engaged in an act of self-deception? There are some arguments in the research that people are deliberately, explicitly, and consciously working on self-deception. They're aware of it. It hasn't settled out. What's happening when and under what circumstances? It's a fascinating question to ask.
Paul Giannamore: I took a few psychology classes at Cornell. I grew up with a clinical psychologist. My older sister has a PhD in psychology. She began her career in forensic psychology where she would deal with criminals and kids that were beaten. She's like Clarice Starling from The Silence of the Lambs. She was doing some postdoctoral work. She did that for a few years and then she couldn't do it anymore because of gruesome scenes and horrible situations.
In the ‘90s, she went to a lecture at Stanford and this is when Amos Tversky was still alive before he passed away. It was a few years prior to him passing and I got to sit down and listen to him. I didn't understand or care at all about what he was talking about but it originally piqued some interest of mine. Over the years, I've gone down the rabbit hole. I'm not particularly interested in psychology but I've read everything that Klein has written, Kahneman, and all these guys.
You start to read these books and they cite a bunch of papers. The next thing you know, you’re downloading academic papers and you go from one study to the next study. It's interesting because I love to read the rebuttals from guys like you who read a paper and then have all sorts of things. Nasty letters going back and forth in these published journals. I do find the areas of psychology that you're focused on to be particularly interesting. I want to talk to you a little bit about M&A. Before we had this chat, you were talking about the concept of hypocognition. What the hell is that?
David Dunning: Hypocognition is simply there is something that exists but you don't have the idea of it, you don't have the concept of it. It doesn't exist for you. The problem with it is that you don't do things or are guided by things you're unaware of. People are constrained in ways they have no idea.
Paul Giannamore: For example, I'm one of the three people that live in Antarctica. I've never seen a telephone and you say, “Give me a call.” I have no idea what that even means. Is that an example?
David Dunning: That's almost a relevant example. There was a guy in Massachusetts in the 1800s who decided he would make a fortune by harvesting ice from the rivers of Massachusetts then going to Martinique with the ice and selling the ice where they didn't have ice. He did that and he arrived in Martinique and everybody there said, “What an interesting and strange substance. What’s its use?” Refrigeration is not a concept they had. They never had a cold drink. The ice went unsold and melted. He later was successful but he didn't realize that he was trying to sell to a need his market had no concept of. That is hypocognition.
Paul Giannamore: How does something like that have relevance to our day-to-day lives?
David Dunning: It has tremendous relevance in the sense that a lot of people make choices simply because they're not aware of concepts that matter. Many people in the developed world have no idea of what compound interest or exponential growth is. The people who don't have that concept, who think all growth is linear and constant, will tend to take on more debt and not pay it off. They don't know how quickly debt increases as you let it accumulate or save because they don't realize how much savings will accumulate due to compound interest or exponential growth.
Attitudes toward climate change are informed by people not knowing about exponential growth and certain problems that the world faces, for example. A lot of people are walking around with undiagnosed diabetes because they don't put together that these different symptoms they're feeling are all related. They don't have a concept of diabetes so they don't realize they've got something that needs medical attention.
Paul Giannamore: Now that you put it that way, I can see it's relevant in every minute of every day of every one of our lives. The average global citizen is walking around and has zero idea of the fragility of the global financial system. There’s crazy stuff that’s going on that we don’t know even exists or understand that these issues exist.
David Dunning: Many people break the law every day and they have no idea that there's a law, for example. There's a world out there of ideas of real things that we have no concept of.
Patrick Baldwin: Dr. Dunning, you mentioned that because the laboratory experiment for you is a Petri dish of new social experiments, did COVID change how people behave and react?
David Dunning: COVID was interesting because it was a laboratory for a lot of things that we studied happening in the real world with consequences. The early days of COVID and even, new variants always come up. Not only as a species are we biologically naïve but we don't have a defense against it. With COVID, we were intellectually naive at the beginning. There were a lot of wrong ideas or things missed because we were dealing with something that we didn't know about.
The first thing you do when there's a sickness out there is to sterilize all the surfaces. That's not how COVID works. In the early days, children weren't all that vulnerable to COVID. It's like the flu, it'll go away when the weather's warm. That turned out not to be true. COVID turned out to be an interesting real-world illustration of a lot of things we were finding in, in a more pallid way, the laboratory. Especially in one aspect, what we find fuels the Dunning-Kruger effect isn't being uninformed. You know when you're uninformed.
When I say, let's have a discussion about heteroscedasticity, you're not going to participate in that discussion. There are situations where we can be misinformed in the sense that we have what looks to be true knowledge but it is false knowledge. It has the look and feels of true knowledge but it doesn't. With COVID, there were a lot of early missteps taken by lead people and public health officials alike because it was so easy to think it was the flu and it will act like the flu. COVID turned out to be very much its own thing. That's one thing that we saw with COVID.
Another thing that happened with COVID is we saw what my philosopher friend, Nathan Valentine, refers to as epistemic trespassing. That is people who knew a little bit of something but they weren't experts. They weren't experts at epidemiology. Making grand proclamations in the public and to government officials about how COVID was going to go because they knew what an exponential, a sigmoid, or whatever curve looks like.
They didn't know epidemiology and its full glory but they were willing to write op-eds and willing to talk to senators based on a little bit of knowledge. They're mathematicians and they're lawyers. They're not epidemiologists but they felt okay trespassing into the expertise of epidemiologists. There are a number of things our work had been about that, all of a sudden, we could see in the real world with COVID. Disastrous. A teeny silver lining was for our lab. It was intellectually exciting to see what we had prophesied that was happening in this real-world circumstance.
Paul Giannamore: Did guys like you sit around and look around the world as a living laboratory and every five minutes be like, “This guy is exhibiting this.” Do you see these things everywhere you look based on your research, all these biases, and all of this? I would imagine you watch the news and you're like, “This guy is not staying in his lane.” I would imagine you see these things everywhere.
David Dunning: I do see them everywhere. Now that we're informed of another, we have the concept if you will. We see a lot of these concepts happen out in the world but it does force the issue of, what do you do about it? What should they be doing? What should we be doing in order to address or ameliorate whatever consequences are happening from people not knowing that they're in much more of a state of ignorance than they know?
Paul Giannamore: Since I have you here, I can't not talk to you about the subject of Mergers and Acquisitions. In my line of business, how I originally began to think about the Dunning-Kruger effect came from me thinking about individuals lacking metacognition as you refer to it in the paper. What I deal with in my business is that I've noticed, where we are in our particular market, that our client base tends to be more intelligent than some of the clients that would use other advisors or do this on their own.
I also noticed that a lot of times, we have clients that are successful businessmen and women. They'll sell their companies for hundreds of millions of dollars. Oftentimes, they will look at their experience in one of our areas of life and almost infer that they'll have the same level of success in an entirely different domain. “I grew a business that does $200 million in revenue. I've fought all the battles and I've done all of this stuff and have a massive team and I'm brilliant. I can also be my own lawyer, my own investment banker, and my own doctor. I can do all of these things because I'm more competent than other folks.” I often run into those things.
When we get into an M&A process, back in ‘93, ’94, ’95, or whatever it was, whenever my sister took me out to see Dr. Tversky, it was the first time I'd ever heard of the term anchoring. For those of our readers who might not be aware of what that means, it is very simple. Humans often will instead of coming up with an exact number for something, they often look for reference points, almost like goalposts. They'll anchor and adjust from that number.
If I were to say, “How old is Patrick?” You might not have any idea. If I say, “Is Patrick older or younger than 45?” You would anchor from that number. Over the course of my early career, I always believed that sophisticated individuals were able to come back relatively easily, specifically practitioners in M&A. We're dealing with numbers all the time. Over the years, I have become a firmer believer that even the most sophisticated among us can get hung up with anchoring.
We're talking about purchase prices. You want to sell an asset. You always want to cause the other side to anchor high and adjust downward. If you're a buyer, you want to put the goalposts low and have them adjust. I always thought it was almost nonsensical. Now, I am the apostle Paul of anchoring, so to speak. I can go through the myriad. I once wrote a paper on all the various biases that I see in the M&A world. I'd love to hear what you might have and tell me what I might be missing because I'm sure there are a lot of things.
David Dunning: There are two things I can touch upon. One is that anchoring is one of the most reliable and almost inevitable phenomena in psychology. Everybody is going to be subjected to it. If you're knowledgeable, it might be subject less but you're still going to be vulnerable to it. Maybe you aren't adjusted enough.
One possible way to counteract anchoring is to explicitly ask yourself the question, “If this is above the range, what could possibly drive the price of something to be even lower?” Explicitly think about that. Think of multiple anchors, especially think about acres of the edge because it'll spread your uncertainty when you realize, “Maybe things out there are more plausible than I thought.” That's one thing to think about.
Another thing to think about, especially in terms of M&A, is overconfidence. There is data from an economist suggesting that the day some company or some team suggests a merger for some other business entity, both their stock prices go down. It suggests that the person making the offer is ahead of the consensus in terms of how valuable they think. They may very well be overconfident.
I would argue that you have to be wary of that circumstance because overconfidence in that circumstance is inevitable. It's inevitable even if you aren't overconfident in the mean or anybody is overconfident in the mean. Let's say everybody's unbiased, their confidence in the mean is pretty aligned with what's happening in the world. However, there are some decisions you decide are pretty good that you're going to go for them. We're all going to make errors in judgments and those decisions. Even though we're not overconfident in the mean, are the specific decisions most likely to be overconfident?
There are a number of things we decide not to do and we may have an underconfidence error. Even if you're pretty well calibrated, due to the fact that we don't know everything about the world and there are errors, the decisions and the prospects we decided to go for could be due to information but it could also be due to errors for making a judgment. Even if we're not overconfident, when we decide to go for something, that's likely to be something we're overconfident about. That's true with M&A. It's illustrated by the bias in behavioral economics called The Winner's Curse.
Paul Giannamore: Wasn’t that Thaler?
David Dunning: That’s Thaler who talked about it or who certainly gave its name. The person who wins at an auction is probably a person who has reasonable value in what they're buying but they're the ones who miscalculated what the thing is worth. They have overestimated what it's worth by definition. This can be a general problem in business.
The business example that people most talked about when they talk about the Winner's Curse and the inevitability of overconfidence is oil gas exploration in the mid-20th century. Companies would survey different fields and decide, “These are the most promising fields. Buy them at high prices.” They’d be much more disappointed than they were elated when they found out how much or how little oil there was. Sometimes there’s no oil at all.
The fields they bought may have been more promising but they also tended to be the fields where they had miscalculated. If there's any decision that's highly costly and you have to invest in it, you do have to ask, “Is this a decision I'm making that's subject to the Winner's Curse? Am I the one, of all my colleagues, who miscalculated the most?” That's something one does have to consider.
Paul Giannamore: When you think about overconfidence, there's a tremendous body of research done on regression to the mean in the aspect of luck in regard to performance. I don't remember the old study. I'm trying to think about the actual one that I read. Maybe it was Kahneman who was talking about how the Israeli military commanders were training pilots. Do you remember this?
David Dunning: Yes.
Paul Giannamore: How did it go? They would yell at people who did poorly and subsequently, they would end up doing better. They would compliment those who did well and they would subsequently do worse. The commanders that we're doing this training came up with a thesis or posited the fact that yelling makes people better and complimenting makes people worse but it came down to luck and regression to the mean.
David Dunning: Noise and performance. If a person does particularly well, they're not going to do as well next time. That's the old Sports Illustrated Jinx once your Rookie of the Year. If a person does particularly poorly, they're going to do better by luck. I want to point that out. If I wanted to be provocative, I tend to shy away because people get angry about this. It's amazing how much success is just luck.
It's true in some areas more than others. To win at poker, not only do you have to be good but you have to be lucky with the draw of the cards. With chess, there's less luck. Even with horse racing. To identify the real skill of a person, you need to see them make 10,000 bets. That's how much luck is involved in what happens. That is an issue when people are trying to know themselves.
Let's say they have a few successes, terrific. You might be good at this. It's more likely you're good at this than you thought you were. It's also extremely likely that you were lucky. The world is now going to give you that lesson within the next few tries. Knowing when you're in a situation of luck or managing luck turns out to be very important because there's a lot of noise in what happens to us in life. The Dunning-Kruger effect is known. It's got a Wikipedia page and everything like that. I could only construe that as luck. It wasn't me. It wasn't Justin. It's just darn luck that made that finding so notorious.
Paul Giannamore: I'd like for you to try this on for size. This might be out of your realm of psychological research. As I think about my day-to-day job from a negotiation perspective, I spent a lot of time thinking about how to increase our performance and effectiveness. One of the things I've been trying to sort through and doing many experiments on is the concept of priming.
We're having a discussion, you and I. Our negotiations are starting to break down. I've been trying to do some experiments using specific words. Professor Dunning, you're a reasonable individual. You're open-minded. I’m trying to prime the mind, so to speak, for these avenues. Everything that I've understood over the years has been entirely anecdotal. They're clearly not studies. What are your thoughts on priming and spreading activation and those aspects of psychology with regard to negotiations?
David Dunning: It’s interesting because there's priming and then there's framing. How do you frame or describe the situation? What is the situation about? You can call that priming and you can call it framing. The old classic political example of that is people are much more favorable about an estate tax than a death tax, for example. How you describe things matters. If you point out what is a reasonable course of action or a rational course of action, people will be much more willing to go along than if you describe the opposite as irrational or unreasonable. People like the good and not the bad.
Paul Giannamore: There was the classic example. Back in the day, gas stations started to take credit cards and there was going to be cash price and credit card price. The credit card industry got all bent out of shape about it. Ultimately, they said, “We'd prefer that you frame it as a discount for cash.” People would much rather forego a discount than pay a surcharge.
The framing clearly is very interesting. I even think above and beyond framing from the standpoint of almost subconsciously priming the brain to certain specific things, priming the brain to open-mindedness. I can prime your brain for the color orange and you think about Halloween and you think about all sorts of other things through spreading activation associated with those specific colors. I haven't been able to find any specific research on priming the brain for those specific types of conditions within the context of an M&A transaction. I know that's a little bit different than the types of stuff that you do. It's outside of your wheelhouse. It's just something that I think about.
David Dunning: The key to both priming, which is subtly suggesting ideas or concepts for a person about how to think they apply to a situation they have coming versus explicitly using certain words to describe a situation or a decision coming up is hitting at the same thing. What you're trying to do is you're trying to set up a certain mental model in the head, a certain way of interpreting the situation that brings, “What's my goal? What are my norms? What's good? What's bad? Cash discounts sound pretty good. Credit card surcharge sounds bad.”
What it comes down to is situations in their meaning are ambiguous. You often can do quite well if you can manage the meaning that people apply to a situation. That's square one of psychology. People aren't so much reacting to an objective situation but their subjective interpretation of it. With priming versus framing, there are different variants of getting at the meaning that people apply to a situation.
I should mention that one powerful meaning to suggest is something that attaches to the identity of a person, for example. People will work hard to be smart, honest, and good parents. If you can attach something to an identity that a person cares about, make the situation about that identity. That can have a tremendous impact on their behavior. If you want new parents to set up savings accounts, you don't want to dwell on the economics of starting a savings account. You want to talk about how savings accounts will help them achieve the goal of being a good parent. Attach the meaning of the situation to an identity they care about. That's a powerful idea to come out of psychology.
Paul Giannamore: You could pull a Thaler and they have to check the box in order to opt out of it. Make them all have a savings account, “If you don't want it, you got to tell us.”
David Dunning: The default option where people go is astonishingly and amazingly powerful.
Paul Giannamore: Let's go back to the origin of the Dunning-Kruger effect. When you and Professor Kruger published that, what feedback did you get from your peers, good and bad?
David Dunning: It's interesting because we've now had over twenty years of feedback from our peers and it's run the gamut, I should mention. The original editor, reviewers, and readers of the paper got it, which we're happy about. It's an odd duck paper. It doesn't fit the Haiku of the usual structure in psychology. I didn't think it was going to be published but it was published. There were certain reviewers we thought would be inevitable so we wrote the paper in defense of them and they didn't review the paper but they came up with critiques of it soon afterward. We were not surprised. We had anticipated exactly what they had said.
There's a small group of individuals studying social psychology, decision making, or behavioral economics in general who favors the interpretation that all we did was labeled noise. The reason why self-impressions don't correlate with objective performance and people don't know when they're doing poorly and underestimate when they're doing well is simply because there's noise in the measurement. You would expect a disconnect, which is something we talked about in the original paper and did work on since but those subsequent papers got ignored.
That's been a critique that often you'll see about the paper. The people who make the critique don't realize that, ultimately, in their critique, what they are arguing is our self-impressions are nothing but noise and not tethered to reality or that psychologists don't know how to measure true ability. That's noise. They don't draw out the implications of what they're thinking about. There has been work we've done and other people have done independently suggesting that the original idea is that if you don't know enough to come up with the right answer, you don't know enough to know whether your answers are right or wrong.
The cognitive problem of coming up with the right answer, those skills, knowledge, and expertise is the same thing you need to come up with in the metacognitive assessment of, “Am I coming up with the right answer?” That's why people don't know that they don't know. They don't have the expertise to know there’s the expertise they lack. There have been numerous demonstrations that that's in there in the mix in terms of creating this disconnect between how much people know how well they perform and what they think of it.
Paul Giannamore: One thing that I liked about the paper was the intro because you two shied away from a lot of the more boring academic intros and you told the tale of MacArthur Wheeler. For our readers, that's why I made the comment earlier that he's not wearing the juice. Let's talk a little about Mr. Wheeler.
David Dunning: Poor MacArthur Wheeler. We wrote this little obscure academic journal and thought that no one will ever see this. He was our example of a person who had a theory about how to escape detection when he robbed banks and that was to spread lemon juice over his face. He had a theory that spreading lemon juice over anything obscures or makes it fuzzy in front of a camera.
To his credit, he tested it. He put lemon juice on his face and then took a Polaroid picture. He miss-aimed the camera so he saw a blank wall. He thought he achieved his purpose. Of course, his face was prominent the day that he rob two Pittsburg area banks on the surveillance cameras. The footage was shown on The 6 O'clock News and he was arrested by the 11 O'clock News.
The idea there is often we have tasks that we want to accomplish. We have theories about how to go and do those tasks. The question becomes, do we know when our theories might be an error and lead to failure or disaster as opposed to success? That was the start of the paper. Thankfully, the paper wasn't too overly academic because we had pretty little academic research to go on. This was an odd duck paper. This wasn't a topic in psychology.
Patrick Baldwin: You mentioned mental models. That was a new term to me up until a couple of weeks ago. Paul, our friend, Kevin, mentioned a book about mental models. This is part of the Dunning-Kruger effect. You don't know what you don't know. All of a sudden, it's like, “Here's this new world of mental models.” I had not heard that term before.
Paul Giannamore: It’s models. Women for mental patients is what it means, Patrick. They send them to institutions. We got to mess with Patrick on here.
Patrick Baldwin: Is this a peer-reviewed study you're doing, Paul?
Paul Giannamore: I'd like to.
David Dunning: Possibly.
Paul Giannamore: I'm sure some cook out there is doing it.
David Dunning: The problem in psychology is we often use everyday words to describe something that is a little bit more technical. People think we're studying X, which seems silly to study when we're looking at a specialized version of X. They use whatever knowledge they have to misunderstand what's been done.
There was a congress rep once who had a problem with some engineers who were studying ATMs. Why would you study ATMs, Automatic Teller Machines? What they were studying was something entirely different, which is Asynchronous something-something. Part of the problem of the Dunning-Kruger effect is we have world knowledge and we can misfire in terms of the application of our knowledge. We know what ATM means. Yes, you do in your world. In the engineering world, ATM means something different.
Patrick Baldwin: I don't even know. We all read The Great Mental Models of Farnam Street. I've read pop culture books and you all are very much into reading the academia. I don't know, Paul, if you're familiar with this.
Paul Giannamore: I’m not.
Patrick Baldwin: Our buddy, Donlan, told me about this book and I got it. He said, “There are different ways to look at problems or think about things.” Inversion was the one that he says he goes to a lot. I don't know if there's something in academia that you all talk about.
Paul Giannamore: What is inversion other than something prohibited by section 7874?
Patrick Baldwin: “There are two approaches to applying and versioning your life. Start by assuming that what you're trying to prove is either true or false, then show what else would have to be true.” That's number one. Number two, “Instead of aiming directly for your goal, think deeply about what you want to avoid and then see what options are left over.” F. Scott Fitzgerald says, “The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function. One should, for example, be able to see that things are hopeless, yet be determined to make them otherwise.” My level of psychology is 80 pages, this is all I can do.
David Dunning: It is an interesting idea because it is related to a lot of methods that are not only in research psychology. Think about how it can be this way but also think about what else it could be. Think of alternatives. Science is an inversion, which is we try to discover things but the way we try to discover things is by putting things to a test and seeing what survives our tests. What I do with experiments is I'm designing things to kill my idea and see if it survives. You can think of that as an inversion.
Paul Giannamoire: Do you do that? This is a great question. Years ago, you guys did all those questionnaires and passed them out, “Is this joke funny?” Are you consciously going in there with a hypothesis saying, “We're going to design this study and we're going to try to prove ourselves wrong.”
David Dunning: We have to come up with a test that could prove ourselves wrong. We can't come up with a test where the only option is we're going to be right. The concept of falsifiability is central in science. What that means is any test that you do has to provide and give a decent chance for your idea to fail. That's what I have to do. I have to come up with something that allows for a decent chance for my idea to fail. I can't prop it up so my idea will have to succeed.
I'm not interested in doing that anyway. I'm more interested in coming up with a finding that any knucklehead could find if they set up the tests in the right way. Other professions do it as well. The American version of the law certainly decides legal issues by putting one side against the opposite side. It has people in the middle sort through which side has the better or sufficient evidence. As I mentioned before, doctors are trained to not even think of the diagnosis but to think of the differential diagnosis or the alternatives. The idea of how things could be wrong or how things could be different, as institutions, that's where major professions have gone in terms of how they test their ideas.
Paul Giannamoire: It's very hard though for an individual to do that on a day-to-day basis, making decisions focusing on negating your hypothesis. It's very difficult to do that.
David Dunning: You can do it to the extent of setting up a lab. You could do some mental exercises. My favorite in judgment decision-making is the pre-mortem where you're planning a project and doing the mental exercise.
Paul Giannamoire: How can this go wrong? What's the worst thing that can happen about this?
David Dunning: It's a flaming disaster, two years from now. Put yourself in that position. Why was it a disaster? What led to a disaster? That's informative. People do know but neglect to think about it or think it through. You're not going to capture all the unknowns that are in the situation but you certainly can capture some by doing some pointed mental exercises and pre-mortemizing something is certainly one way to do it.
Paul Giannamoire: That's an important thing to talk about. Correct me if I'm characterizing this wrong. When I think about a pre-mortem, let's say that you're running a business and you've got your team, there are five executives sitting at a table. You're debating, “What are we going to do with his $10 million?” Everyone's got an idea for a project. You collectively determined that one project is the right thing to do and then you sit back and say, “Everyone, take out a piece of paper. Take fifteen minutes. How could this $10 million investment in X turn into a dumpster fire? What are the things that could go wrong with this?”
Usually, when you're planning to invest something, you're overconfident, you're focused on all the good that's going to come from it, and you tend to sometimes neglect how it could turn into a dumpster fire. Pre-mortems are great things for business people to do to flush that out. Did I characterize that correctly?
David Dunning: I think so. This leads to a statistic that is important but misunderstood and that's the statistic that most businesses that start fail within five years. An outrageous majority of businesses fail. The lesson that a lot of people take from that is some of them succeed and everybody in the main was overconfident. Overconfidence is a good thing because it gives us all these few businesses that turned out to be valuable and worthwhile.
My thinking is, no, they probably were a terrific set of ideas that failed. They failed because people didn't pre-mortem if you will. They didn't prepare. They didn't make sure they had enough capital. They didn't have enough of a buffer. My takeaway isn't that overconfidence is good. My takeaway is that people should be better prepared for a disaster coming up and then society would benefit even more. Pre-mortem is certainly an exercise that gets you there.
Paul Giannamoire: That's a great point.
Patrick Baldwin: One thing I've learned from Paul over the last few years is only worrying about things that are in your control though. Even in terms of pre-mortem, there's a lot of unknown. We don't know where the economy is going tomorrow. How do you only worry about things you can control?
David Dunning: You have to prepare within the things that you know and the things that are relevant. One thing that is always going to be relevant in ways you don't know is everything else, life, outside forces, the economy, the weather, and health. For example, who would have predicted a pandemic? That's a little bit out of line. You have to do preparation knowing or being prepared for the fact that you're not going to know everything. What implication does that have?
For example, let’s say I’m getting holiday shopping done in December. I always have an X factor of, there's a number of things that are going to happen that I have no way of anticipating that are going to delay. I put that X factor in. By the way, there are some businesses that operate under this procedure because life happens and people are overconfident.
There are many software firms that when they go to their developers and ask, “How long will it take to develop this piece of software?” They take the estimate they get to heart and then inflate it by 30% automatically and they do so because they know their developers are going to overlook some things. They're going to be overconfident and life will happen. 50% if it's operating system-related. They are prepared for the fact that they don't know what it's going to be but they know there's going to be something that beats on them and they incorporate that into their planning.
Paul Giannamoire: For me, the concept of focusing on controlling the things that I can control comes down to me trying to, in my mind, make a distinction between risk and something such as Knightian uncertainty. With risk, I can calculate the probability of something. I can go to the wheel and I know what that probability is.
The chances of Italy leaving the Eurozone in the next 36 months, if I assign a probability to that, I would have to trade or invest based on that and that probability is completely fake. To me, that is almost Knightian uncertainty. In the concept of my day-to-day job, there are things that I face that are risks and then there are other things that are the unknowable unknown. The Knightian uncertainty.
David Dunning: For academics and lay people, there are risks. There are things you know could happen and you can assign probabilities to them. There's uncertainty. There are things you can know that can happen but you don't know what the probabilities are. There's ambiguity or unawareness. There are things that could happen that you have no idea about. You can't even assign a probability because you don't even know it could happen. States of the world that could arise.
What is interesting is economics, much like the rest of us, tends to try to solve problems in the realm of risk. It rarely tries to solve problems in the realm of uncertainty where you can't apply probabilities to what might happen in the future. There are few economics papers that I presume they're like people, who try to figure out problems when they know there's ambiguity. You have no idea of all the different types of things that could happen in the future. What are all the possible outcomes? we tend to be constrained in what we consider much of the world as either uncertainty or ambiguity in real life.
Paul Giannamoire: If you think back through financial history, that's one of the classic problems with the Gaussian bell curve with regard to the pricing of options and other financial derivatives. Oftentimes, it fits nice within that little bell curve but every once in a while, you get a 7 sigma move and that's it.
Patrick Baldwin: I'm curious if you can tease out any of the unpublished papers or work that you're working on right now.
David Dunning: We're doing work on the paper. If we had been omniscient, we would have started off with this one because everything flows from it. It goes back to this idea that whatever decision we make, it's the one we're the most confident about. That can be true for our decisions that turned out to be right and that can be true for decisions that turned out to be wrong.
In a number of studies that we're still working on, what it has shown is that's true. If I take your decisions and show them to somebody else and have them write their confidence in your decisions, people are slightly less confident in the decisions you get that are right but they're very good at spotting your errors much better than you are. The problem we have is that we're always in the realm of choosing the thing we're the most confident about. We're going to be overconfident.
To give it to a random person, they do a better job sifting through what are right and wrong answers. When you think about it, in our data, it is but it's remarkably true. Everything else follows the 1999 paper on people not knowing when they're incompetent or poor performers. The fact that top performers turned out to be hard to spot because few people are competent enough to realize how competent these people are. Also, any number of biases that we can talk about. That's where the work is now. Going back to the paper we should have started with, it only took me twenty years to figure it out.
Patrick Baldwin: Working backward. I'm wondering. Dr. Dunning, you’re a psychology expert but you've also had to speak to history, politics, and economics. We've got an M&A. How do you handle knowing a lot about psychology in a lot of different sectors or viewpoints?
David Dunning: Not well. To be an academic these days, you have to be aware of and somewhat conversant in a lot of different fields. I do read a lot of economics. I read a lot about political science. They've discovered a few psychological topics that were big in the ‘70s. In psychology, they're now big in political science, management, and the business world.
If you do work that interests you, it hopefully will interest a lot of people and a lot of different realms of life, or what they're doing should be of interest to you. You do have to pay attention to what's out there but of course be intellectually humble about it, which is probably a lot more that's relevant that I don't know about.
To tell you the truth, I grew up in an era without the internet where you can be insular and narrow and not worry about other fields or the real world. If you're a younger academic, you don't have that option. You've got to pay attention to a lot of different things that are out there. In some sense, I construe myself as having it easy.
I could do a version of what I do being narrow and insular and it'd be perfectly fine but I can't imagine a younger academic doing that. There's too much that’s it's irrelevant. There's so much crosstalk that's happening electronically on the internet and you've got to be aware of it. I'm impressed with some of my younger colleagues on how much they know. They're much more widely conversant than I am and I'm in awe of them.
Paul Giannamore: I've got a final question. What are some of your favorite books?
David Dunning: I tend to go back to stuff I read when I was young that was out there. Gördel, Escher, Bach: An Eternal Golden Braid is a book about recursion. It's a delight. It's about everything and nothing at all. It's a playful book. In terms of fiction, I tend to like writers who are straight ahead.
Paul Giannamore: Are you talking about this one?
David Dunning: That book exactly. I lost my original copy because I read it and I recommended it to a person. They loved it. They told another person so they borrowed my book and then I lost it.
Paul Giannamore: I've got a spare for you.
David Dunning: I like Steinbeck. I like Hemingway. They are straight ahead in terms of writing. I like the simplicity and clarity of a sentence. That's what I tend to gravitate toward. I find it more difficult to read these days simply because there's much more on the internet. Too long didn't read, I've fallen prey to that more and more. Give me the CliffsNotes version. I have to admit, this is happening with a lot of different things that I consume like movies or TV shows. I experience the first few episodes or chapters to get the tone and style. What is the artist trying to do here? I get to the end to get the outcome. Let's skip all the middle.
Paul Giannamore: Isn't it the journey that you're supposed to enjoy?
David Dunning: I like short and punchy journeys.
Patrick Baldwin: In the quest to know thyself or self-awareness, you get to publish all the research and take people like Paul and make him a guinea pig and ask them cool questions and put it all together. For you personally, is this been a quest for you to know thyself?
David Dunning: In some sense, it has become a quest to know thyself because finding out that it is an intrinsically difficult task is interesting. If you're doing work on it naturally, you want to apply it to your own life. At my core, I came to psychology from the humanities if you will. To me, it's telling the story that matters a great deal.
In terms of the task of knowing thyself, they are a tremendously huge number of stories to tell that I consider worthwhile. I'm getting excited about trying to tell these stories and hoping that the reviewers like the stories. Maybe they don't start at the beginning, they just jump to the end. Maybe they read the whole thing.
Paul Giannamore: Dr. Dunning, I truly appreciate you spending time with us. I had a fantastic time. I know our audience enjoyed it.
David Dunning: Thank you. I enjoyed our time together. It's a fantastic conversation. Thanks so much for inviting me. I wish you the best as you continue on.
Paul Giannamore: Thank you so much. I hope our audience won't read the first few minutes and skip to the end.
David Dunning: This one truly is the entire journey.
Patrick Baldwin: Thanks, Dr. Dunning.
David Dunning: Thank you. Take care.
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Paul Giannamore: The core of this whole Dunning-Kruger effect situation for me is thinking through the fact that, first off, those that are least competent to be able to do something often are the most overconfident. I see that in my everyday life, particularly in regard to M&A. A lot of business owners out there are successful. Sometimes they like to transfer that success in one area or one aspect of their life to other areas in which they're not.
We're all guilty of this. I'm as guilty as anyone else. If I'm good at one thing, I'm overconfident that I'd be great at something else, which we know is not the case. In a lot of areas of life, we don't even know what we don't know. I know that sounds cliche but it's exactly the truth. I deal with that every here in my business.
It was a fascinating discussion for me with Professor Dunning. I appreciate you getting him on here. I would have loved to have done that in person and poured some bourbon with the guy and sat down. I could have talked to him for hours and hours. Although I was not a psychology major in college, I took some psychology courses. I've always found that thing extremely fascinating, particularly on the biases side.
Patrick Baldwin: You've been around the Dunning-Kruger effect since it came out. You were part of it, the origin of it. This is part of how you reason with things. A question for you is when was the last time that you consciously thought about the Dunning-Kruger effect?
Paul Giannamore: I think about it almost every single day. If you're in the industry and you've ever had a conversation with me, you'll probably know that I get calls every day from people in the industry saying, “I'm thinking about selling my business.” I ask a lot of questions. I try not to talk on these calls. Even though I talk on the Buzz, I try to listen and ask a lot of questions. What I'm trying to ascertain is what these folks understand and what they don't understand.
What I find is the folks who are the biggest dangers to themselves are the ones who have talked to somebody who's been through the process once and probably did a poor job on their own. All of a sudden, they took that advice and coupled it with the fact that they're a good businessman. Now, they're an expert in all things M&A-related. I talk about it all the time. I'm pretty frank with people when I hear things. As we know, I probably don't mince words as much as I should. I sometimes say, “That's stupid. You sound like an idiot and here's why.” I think about it often, Patrick.
Patrick Baldwin: Seth, it's a newer concept for you. I've at least had a couple of years of hearing Paul talk about Dunning-Kruger, which has been interesting to learn about.
Paul Giannamore: It's intuitive though, Seth. This is one of those things that you always knew but until somebody frames it out in some way, it didn't exist until it does.
Seth Garber: It's one of those things I wasn't aware of it until we started this discussion related to Dr. Dunning. The reality is I've probably had 50 discussions about this with different people and different thoughts behind it with my wife and everybody else. Whether I brought up the name of it or whatever the case may be, it's something you see every day of your life and you don't even realize it.
Patrick Baldwin: Were they grateful for the conversation?
Seth Garber: Some of the people that I had spoken to about it or some of the companies that we work with, I didn't tell him why I was talking about it but I brought it up. What I found was there was a distinct line between the people who identified themselves quickly as people who do this versus the people who started asking questions about it. They were the ones that don't fall into this basket.
After listening to the pod again and hearing your perspective, Paul, as you had talked about what you referred to, different types of businessmen moving into different sectors, it resonated with me. It was pretty powerful stuff. I'll probably think about this every day for the remainder of my professional career.
Patrick Baldwin: Are you going to listen to this one again every day?
Seth Garber: One more time, to be sure that we all sound good.
Paul Giannamore: For me though, it's a reminder that, over the course of somebody's life, you start to develop an expertise in something. You become an expert. The more expert you become, you tend to shut off other sources. Ignorance, in a lot of ways, can be powerful in the search for knowledge. Even beyond what Dunning and Kruger talked about is that those who are least competent tend to be the most overconfident. We can all be guilty of building up some expertise and then shutting out other things, other contrary opinions.
I'm not always successful in doing that but I try to open my mind to alternative discussions and opinions on things. Dunning talked about polarization. Nowadays, our audience out there who listen to Fox News probably do not listen to any other news source type of thing. Vice versa. Everyone's listening to their own echo chamber from all walks of life.
That's why, Patrick, we've talked about this on the Buzz extensively. I credit Mike Rogers for this original point that he made about how he never went to PestWorld. He never went to industry association stuff. He always went outside the industry. He didn't want to be in that echo chamber. He always wanted to expand his mind. He wanted to see ideas outside of the industry and try to pull them in. That's an important aspect of keeping an open mind in trying to discover your ignorance.
Patrick Baldwin: What do you all do? Do you almost go to a contrary opinion somewhere? If you're tuning in to Fox News, do you turn on another station to see what they're saying or what's going on or to open your mind to the other side of the argument?
Paul Giannamore: For me, I'm 100% apolitical so I don't even pay attention to any of that stuff.
Patrick Baldwin: I’m not asking for your gender. This is not a he, she, or they. What did you say?
Paul Giannamore: Are you asking what I do to counteract staying on one side so to speak?
Patrick Baldwin: Yeah. Are you completely neutral? You're saying you don't have a dog in the fight kind of thing.
Paul Giannamore: What I'm saying is, from a US political perspective, I look at the Democratic and the Republican parties as virtually the same. They're big status and they want to develop a large central state in Washington. Each of them has their own pet projects. They're focused on growing government. Quite frankly, every single thing that they do is contrary to liberty in the United States. That's why I am apolitical, meaning traditional political parties are thinking about it that way. As you know, Patrick, I can't vote in the US. I have joined the Russians on Facebook. That's a joke out there.
Seth Garber: I'll answer that question. I am notoriously bad at consuming news information around the same time every single night. I do exactly what you described, I watch one station and then I watch the other. I'll turn on Fox, then I'll watch CNN, and then I'll watch NBC. Some of it is for the comical components. The reality is that I tend to develop my own opinions based on what I'm seeing and find the place in the middle as many people do. I'd notoriously do it for half an hour every night. It's pretty funny.
Paul Giannamore: I got a question for you, Patrick. You're a Southern Baptist down there if I recall correctly. I got to wonder, do you spend any time reading the Quran? Do you go out to the Babylonian Talmud, perhaps?
Patrick Baldwin: No.
Paul Giannamore: I wonder why a man who's seeking truth and God does not do such.
Patrick Baldwin: We were talking about this about five minutes ago. Theologically, within the Christian church, I'm in a certain camp. As I'm reading the Bible, I'm thinking about the contrary opinion within Christianity. As far as outside of Christianity, I'm close-minded on that. Sorry. That's how I feel about it. When it comes to Fox News, I don't consume TV like someone else in the house that has Fox News on all the time. I happen to sit there, work, read, and all that stuff.
Seth, to your credit, we don't change the channel. We might as well pay for cable internet for two channels maybe, one is Fox News and the other is Food Network or whatever. I like your thought of changing stations and getting different opinions or unplugging the TV. The noise stresses me out too on politics.
Paul Giannamore: I almost see no benefit in it at this point. When you get involved in national politics in the United States, you're rearranging deck chairs on the Titanic at the end of the day. Every single year goes by, they blow more money, they make more laws, and the US becomes more indebted and the middle class becomes poorer. It needs a reset in a lot of ways.
Patrick Baldwin: Let's do it.
Paul Giannamore: You heard me talking to Texans, Patrick. I said that I will begin to have respect for Texans when they put their money where their mouth is and they secede from the Union.
Patrick Baldwin: I got the Texas hat.
Paul Giannamore: I can see that, Patrick. I'm thrilled. I want to see you out there helping your Lone Star State brethren. Texas should be out. It’s big enough.
Patrick Baldwin: It's got the economy.
Paul Giannamore: We often don't talk politics on the Buzz.
Patrick Baldwin: It's polarizing. Let's do this. Neither of you knew this one was coming. Dr. Dunning talked about pre-mortem exercise. Mr. Giannamore, let's pretend Seth and I want to start a pest control company together in Texas. It is the Republic of Texas. Before we secede, we're still staying. You would run us through a pre-mortem exercise. What would that look like? Great question.
Paul Giannamore: In basic terms, a pre-mortem is you figure out the plan and then you say, “How are we going to muck this thing up? How can everything go south?” You and Seth are doing a pest control company. What's the pre-mortem for you guys?
Patrick Baldwin: Run us through it.
Paul Giannamore: I would say that it's impossible. You guys can't do it. The pre-mortem closed. You're restricted by restrictive covenants in Florida. It’s not going to happen, Patrick. I do think though that there is value in pre-mortems when you've got a business and you're thinking about adding on a service line or you're thinking about adding on a department. You could spend some time thinking about all the ways things could get messed up. Seth, what was your takeaway?
Seth Garber: The interesting thing is that I never thought about a pre-mortem. I thought about it in the past but I never thought about it in context. After hearing the descriptions, it made me think about it. Let's use an operator who was going to go start a pest control company. There'd be several things that I would personally think about. If Patrick and I were going to go start a pest control company, we probably have a pretty good opportunity to go do it.
If I was somebody who was from another industry and I decided to get into the industry, there could be a lot of questions related to, how do we get the right licensing? Do we know the process to do so? What does the insurance look like? What happens in the case that we get overextended on whatever financial structure we have? Those all build a lot of interesting use cases.
During the discussion that was being had with Dr. Dunning, the interesting thing is how he tied it together about the pre-mortem ends up determining the fact that you might have the wrong goal. You might have this bigger goal and the pre-mortem says the goal is not attainable, which I thought was interesting.
Paul Giannamore: Gary Klein is the one who talks about pre-mortems. Gary Klein was a psychologist. According to Gary Klein, as per Daniel Kahneman, the pre-mortem has two main advantages, it overcomes the groupthink that affects many teams once a decision appears to have been made and it unleashes the imagination of knowledgeable individuals in a much-needed direction.
Clearly, breaking groupthink is an important aspect of that. If the three of us are sitting down together and we want to build a bridge that we want the Mexican to go under and prostitute himself, we have to think about everything that goes into the construction of the bridge. we should use a pre-mortem to determine how we might utterly fail. Is that not good for the air, Patrick? Is that why I'm getting those faces?
Patrick Baldwin: I hope you got us the vaccine. Monkeypox.
Seth Garber: Paul's description is way better than my description.
Patrick Baldwin: This might take us on a tangent but I was thinking about groupthink. In terms of masterminds, does groupthink become embedded within a mastermind group?
Paul Giannamore: When you talk about groupthink, here's what ends up happening. You have six people sitting at a table and we're all talking about a project. We work together, we got to do a project. The problem with groupthink sometimes is you might have a dominant person at the table who makes a suggestion and then everyone says, “That's a great idea,” and follows along with it.
A couple of ways to handle groupthink, and this is what I've done historically, is to say, “We're going to focus on X, Y, and Z. I don't want anyone's opinion now. I want you to write down what it is that you think we should do and then we're going to collect everyone's thoughts and then we're going to discuss it.” That breaks the whole groupthink aspect. It’s the whole social psychological aspect of some people might be shy to raise their voice and some people might be shy to tell somebody else that they're a moron. There's all that. You've got that groupthink. That's present in any group of two or more individuals.
I don't know about masterminds and peer groups. In theory, a real mastermind should counter groupthink. In a mastermind, as it was traditionally established, somebody stands up there and has a business problem. You need some advice. You have a discussion about a topic and then everyone who's sitting around is supposed to tell you what they think about it.
Seth Garber: Years back when I was in the tech space and after I left the pest control industry for the time being, we had a consultant come in and they taught us the process that Amazon uses in dealing with groupthink, which I thought was interesting. In order to avoid some of the challenges, they would force their teams to clearly draft out whatever subject they were talking about into an executive summary. The executive summary was then passed around to everyone within the group to read prior to the meeting.
In that executive summary, it had to be written so well that everyone else in the room had to have the ability to come to a conclusion based on what that summary said before the discussion started. I found that interesting. We executed that in this organization. What it did is it allowed everyone in the room to get out their thoughts on a subject prior to any decisions or discussions being made.
I found going through the exercise was powerful. Paul, to your point, the person who has a dominant personality, and I'm one of those people, is that it voided people from abandoning some great ideas that they had. I would argue that, as an organization, as we did these things, people that typically wouldn't stand up for themselves had the best ideas in the room that ultimately ended up becoming the most profitable for the company. I thought it was a good methodology. We did it for a long time. I found it powerful.
Paul Giannamore: Seth, as per usual, it’s great getting you back on the Buzz. I'm glad you're going to be a fixture here on the show going forward. We're getting close to the month of September 2022. Are either of you guys going to PestWorld this 2022?
Patrick Baldwin: I'll be there.
Seth Garber: Paul, we're going to be there. We're taking some of our team members this 2022.
Paul Giannamore: Do either of you buy tickets and go in or do you have meetings and drinks out? I've been to PestWorld a few times and I've never had a ticket. I either borrow an entrance pass or I mainly have meetings and drinks in the surrounding areas.
Seth Garber: I've got a methodology. We get to PestWorld and we tend to be pretty booked up like most of you guys would be when you go. Every single year I go to PestWorld, I get there, and I'd never had a ticket. Every single year, I walk right up to the ticket booth and I end up buying a ticket just so I can walk around it around my neck and I never hardly go into any of the sessions or anything. I do it because I feel like I'm there and I feel like I should have a ticket.
Paul Giannamore: The PestWorlds around the world don't even sell tickets. They welcome newcomers. They welcome all. You like PestWorld, Patrick.
Patrick Baldwin: You said you were apolitical, Paul. Apparently, you're not. This will be my first PestWorld, Paul. For years, you told me and Bobby, “Yeah.”
Paul Giannamore: We've talked about it, Patrick. Years ago, we used to have meetings with acquires at PestWorld because everyone was there. I'm a leper when I'm in PestWorld because if anyone's talking to me, rumors start that way. I won't be going this year once again. If you want to meet with Fat Pat while he's there to talk all sorts of fun stuff, add Fat Pat on Twitter.
Patrick Baldwin: Awesome, guys. Thanks again. Congrats on making it to 100.
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Professor David Dunning
Think Again
Unskilled and Unaware of It
The Winner's Curse
The Great Mental Models
Gördel, Escher, Bach: An Eternal Golden Braid
Apple Podcast – The Boardroom Buzz