Can Cold Hard Facts Mitigate Overconfidence Bias?

Do humans suffer from overconfidence bias?  You bet!  Most of us think that we are above average.  In fact, studies show that, "The most incompetent people, in whatever skill researchers ask about, tend to overestimate themselves by the widest margin. People who actually are above average are often pretty good at self-assessment, and some rock stars even mistake themselves as closer to average than they are." 

Many people have argued, however, that overconfidence can and should diminish if individuals are exposed to objective performance evaluation data.  Is that true?  Well, a new paper by Patrick Heck, Daniel Benjamin, Daniel Simons, and Christopher Chabris (published in Psychological Science) questions that conventional wisdom.   They studied over 3,000 tournament chess players from 22 countries.  In chess, each player has a rating that accurately reflects their probability of winning a contest.  In short, chess players have access to objective, accurate performance evaluation data.  Yet, overconfidence persists even in the face of cold hard facts! The scholars report:

"On average, participants asserted their ability was 89 Elo rating points higher than their observed ratings indicated—expecting to outscore an equally-rated opponent by 2:1. One year later, only 11.3% of overconfident players achieved their asserted ability rating. Low-rated players overestimated their skill the most and top-rated players were calibrated. Patterns consistent with overconfidence emerged in every sociodemographic subgroup we studied. We conclude that overconfidence persists in tournament chess, a real-world information environment that should be inhospitable to it."

Hubris gets the best of us at times, and it certainly affects business leaders in many situations.  My conclusion from this study is that we can't simply expect good outcome measures to mitigate overconfidence bias.  Pointing to the facts is not enough.  People's emotions matter, and their identity shapes how they will make sense of objective performance data.  As we give feedback or evaluate performance, we need to consider the likelihood that distorted perceptions of self-efficacy may not go away just by pointing to the numbers.  We have to appeal to people in ways that go beyond the data if we wish to help them reset their self-evaluations and improve based on our feedback.  

Why We Should Frame Feedback as Advice

Source: Pixabay

Jaewon Yoon, Hayley Blunden, Ariella Kristal and A.V. Whillans published a Harvard Business School working paper recently on the topic of seeking (and providing) constructive feedback.  They argue that we should request advice from colleagues and leaders, rather than asking for feedback.  Yoon and colleagues demonstrate through a series of experiments that, "People offer more critical and actionable input when they are asked to provide advice (versus feedback)—even when they are asked to provide comments on identical output."  

What's wrong with asking for feedback?  The scholars argue that feedback often is associated with evaluation in the workplace.  In other words, we almost always shift into evaluative mode, rather than developmental mode, when asked to provide feedback to someone else.  They point to past research showing that being in an "evaluative" mode tends to reduce the constructiveness of feedback.  When we are in evaluative mode, we tend to look backward, rather than focusing on suggestions for how to improve performance moving forward.  The scholars state that, "When focusing on an evaluation of past performance, input givers are less likely to consider how the recipient could perform better in the future."

Yoon and her colleagues summarize the findings from the experiments they conducted:  

Findings from four experiments suggest that asking for feedback may inadvertently prevent givers from delivering useful input. When asked to provide feedback across a variety of work-related tasks—whether they were asked to evaluate a stranger’s cover letter (Study 1A), a colleague’s work performance (Study 1B), or an instructor’s teaching (Study 2) — people provided less critical or actionable input than when they were asked to provide advice. Asking for feedback focused the givers’ attention on evaluation, which hindered constructive feedback delivery. In contrast, advice givers persisted in providing more constructive input even when they were prompted to focus on evaluating the recipient (Study 3). These results suggest that asking for advice could be a powerful way to solicit constructive comments, even in cases where evaluation must accompany input, such as during annual reviews that require performance-based ratings.

Should Your Firm Dump Its Employee Grading System?

The Wall Street Journal published an article this week titled "The Trouble with Grading Employees."  The article, authored by Rachel Feintzeig, focuses on some companies that have chosen to abolish their performance evaluation rating systems for employees.  Feintzeig also reports on some firms that have considered eliminating their rating systems, but were reluctant to abolish them.  Intel was one such firm.  Here's an excerpt that focuses on why rating systems are being questioned by companies such as Intel:

Intel Corp. has long rated and ranked its approximately 105,000 workers on a four-level scale, from “outstanding” to “improvement required.” Devra Johnson, a human-resources director at the chip maker, observed that ratings tended to deflate morale in a good chunk of the 70% of the company’s workforce that receives a “successful” rating each year—the second-lowest label.  “We’d call them the walking wounded,” she said.

I think the debate about ratings systems actually misses the point.  Companies should focus less on whether they use ratings and more on how they optimize performance overall.  To do so, firms should focus on four big ideas.  First, employees need to know where they stand.  That's the core principle that all performance evaluation systems must adhere to regardless of whether firms use a rating system or not.   In too many situations, employees simply do not understand how they are doing.   Second, differentiation is essential.  Not everyone is above average.  Even with ratings systems, some firms do not do enough to distinguish between high and low performers.  Others take rankings to an extreme.  Third, good performance management rests more on the informal modes of communication between manager and employee than on formal evaluation systems.  Communication between manager and employee must be frequent, open, and two-way.  Waiting for the formal review to take place is a recipe for disaster.  Finally, great companies create environments that foster intrinsic motivation.  They do not rely solely on the extrinsic rewards or punishments that come with formal evaluations. 

 

The Promise and Peril of HR Software

Michal Lev-Ram wrote an interesting article this week in Fortune magazine.   Lev-Ram examines new HR software systems being sold by the likes of IBM, Oracle, and SAP.   These systems, among other things, attempt to improve the performance review process.   The systems attempt to make goal-setting and performance review a year-round process, as opposed to an event that occurs once or twice per year.  The software includes virtual rewards, as well as methods for distributing real rewards.  The systems also enable employees to set goals throughout the year and track progress, as well as to solicit feedback throughout the year. 

The key question:  Will employees actually USE these types of systems to enhance performance evaluation and constructive feedback?  Or, will employees view these tools as cumbersome, time-consuming, and distracting?  Such systems only create value if employees invest the time to use them.  Moreover, they only help drive talent development if they become more than an evaluative tool.  They have to be formative/developmental tools as well.   If employees view them as strictly evaluative, they aren't likely to enjoy using the systems.  Moreover, they may simply not take the time necessary to obtain optimal value from them. 

In the end, talent development and performance evaluation only will improve if such systems are implemented along with a broader systemic change in processes, norms, and leadership behaviors.  Without such systemic change, new software alone won't have the desired effect.

External vs. Internal Hires: The Pay-Performance Gap

Wharton Professor Matthew Bidwell has conducted some fascinating new research that contrasts external vs. internal hires.   Do people hired from the outside get paid more than internal workers doing comparable work?  Do external hires perform better or worse than their internal counterparts?   Bidwell finds that external hires get paid substantially more than internal workers.  Why?  His research shows that, on average, they tend to have more education and experience than internal workers (in other words, their resumes look stronger).  However, a strong resume doesn't necessarily equate to on-the-job performance.   Bidwell finds that these external hires tended to do worse on merit reviews in their first two years at the new organization.  Moreover, they leave more frequently than internal workers.   If they survive those first two years, then they tend to do better, even getting promoted faster than internal workers.   However, those first two years can be quite rough, especially when you consider how much the organization is paying for this new talent.  

We should take a few key lessons away from Bidwell's research.  First, we have to be wary of becoming enamored with a beautiful resume.  Credentials don't necessarily translate into performance.  Second, we have to recognize that the first year, even for quite competent folks, can be a difficult transition period.  Acclimating to a new culture, new processes, and new colleagues can be very challenging.   Finally, in baseball, we often hear that general managers "fall in love" with their own minor league prospects.  They sometimes overvalue them, and demand far too much in return for trading them.   Others "fall in love" with outside free agents and give up a great deal to acquire that "external" talent.  In business, it seems that we often undervalue our own "prospects" in favor of the free agents.  We have to focus on developing our internal talent and assessing it fairly and accurately. 

The Challenge of Evaluating Leaders

Here in Boston, the Red Sox implosion has dominated the headlines for the past week. Manager Terry Francona has exited. Now attention has turned to General Manager Theo Epstein. How much blame does he deserve? Most people would place significant responsibility on Theo for selecting a series of high-priced players who have under-performed badly. However, observers then note that he has won two World Series during his tenure. Theo typically receives much credit for those championships. However, a closer look reveals that a number of key players from those teams were not selected by Theo. Consider the importance of Manny Ramirez, Johhmy Damon, Kevin Youkilis, Jason Varitek, Jon Lester, and others who were chosen by the prior regime (as well as Josh Beckett and Mike Lowell who came in a trade engineered when Theo briefly quit in 2006).

Consider too the credit given to Bill Belichick for the Patriots' three Super Bowl championships. Clearly, he deserves great credit for coaching those teams. However, what about player selection? Naturally, he chose most of the players. However, a small core of crucial players, particularly on defense, were chosen by Bill Parcells. Belichick has not won a Super Bowl without that core. Those core players include Ted Bruschi, Willie McGinest, Troy Brown, Ty Law, Ted Johnson, and Adam Vinateri. That's a key group not brought to the team by Belichick.

What's the lesson for those in business? Be careful when evaluating leaders at all levels. Performance lags decisions and actions by quite some time in many firms. Thus, today's success or failure often cannot easily be attributed solely to today's leaders. For this reason, firms also need to be careful with rotational programs. Moving folks too quickly can make it very difficult to judge their performance accurately.