Hi Guys,
As usual, Mark Twain said it best: “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
The simple truth is that we consistently overestimate what we think we know with absolute certainty. That can spell disaster for an aggressive investor. That’s not me making an assertion. There have been countless studies that establish that very human tendency.
Here is a Link to a terrific article by Michael Mauboussin that documents that unhealthy overconfidence tendency:
https://doc.research-and-analytics.csfb.com/docView?language=ENG&format=PDF&source_id=csplusresearchcp&document_id=1048541371&serialid=mofPYk1Y4WanTeErbeMtPx6ur0SCIcSlaZ7sKGPdQQU=Within the article, Mauboussin references the test which requires the test taker to estimate his answer confidence by scoring the probability of that answer being correct. It’s that estimate that separates the men from the boys. Here is a direct Link to the referenced 50 question true-false test:
http://confidence.success-equation.com/Please give it a try. It’s actually fun and you might just learn something about yourself. After completing the 50 questions, you’ll get immediate scoring feedback.
I took the test and like most participants I overestimated my knowledge base, but not by too much. Perhaps I’ll become a more conservative investor given this additional insight into my decision making process.
Good luck to all. What do you think of the test?
Best Regards.
Comments
Thanks. That was fun.
And yes, I overestimated my confidence somewhat.
As a friend told me - investing isn't about how one sees
their investment strategy but how clearly one sees one's self.
I hope all is well with you,
Flack
Indeed, it is good to hear from you. Given my age (82), my wife and I are doing well. I hope that's the same with you and yours.
I too am marginally overconfident by less than 10 points. That's not too bad. The test was hard. I was only 100% confident with 6 questions and I was wrong in one instance. There's always danger when you claim 100% certainty. The marketplace teaches that lesson time and time again.
Stay healthy and wealthy.
Best Wishes.
Good to hear from both of you.
PS: Enjoyed the quiz. No idea what the score means. But I imagine it demonstrates that I'm not a genius - which I already knew.
Mean confidence: 71.00%
Actual percent correct: 64.00%
You want your mean confidence and actual score to be as close as possible.
Mean confidence on correct answers: 73.75%
Mean confidence on incorrect answers: 66.11%
You want your mean confidence to be low for incorrect answers and high for correct answers.
Quiz score
32 correct out of 50 questions answered (64.00%)
14 correct out of 26 questions answered with low (50 or 60%) confidence (53.85%)
6 correct out of 8 questions answered with medium (70% or 80%) confidence (75.00%)
12 correct out of 16 questions answered with high (90 or 100%) confidence (75.00%)
Calibration Graph
On the other hand, my instinct was certainly to agree with hank that "You want your mean confidence and actual score to be as close as possible." It's not possible for your mean confidence to be any lower than 50% but it's certainly possible for your actual score to be lower than 50%.
My score ended up similar to what seems to be common for others- I was 64% confident in my answers and got 56% right. In several cases I realized I answered contrary to what I intended, which might be a more valuable learning than anything else. I don't think I've ever heard the word "ferrule" before and I don't think I'll be surprised if I never hear it again.