Breaking the Illusion of Competence: The Dunning-Kruger Effect

Hi All!

Here is my weekly wrap-up.

What’s in today’s newsletter?

• Idea: Dunning-Kruger Effect
• Question: Self Compassion
• Quote: Second & Third Order Consequences
• Podcast:
  • David Greenberg - Ex-Chair NYMEX ($12 Billion Commodities Exchange)
  • David Greene - Host of Bigger Pockets Podcast
• Article: The Netflix Effect

Idea: Dunning-Kruger Effect

Have you ever met someone so confident in their abilities, but so clueless in reality?

Maybe they thought they were a great singer, but sounded like a dying cat.

Or maybe they claimed to be an expert in something but made basic mistakes.

That’s the Dunning-Kruger effect.

Let me share a study and a story.

A Study

A study was conducted by researchers from Cornell University and published in the Journal of Personality and Social Psychology.

They asked college students to take a 10-question test on American history and then estimate their own scores and the average scores of their peers.

They also asked them to rate their own knowledge of American history compared to their classmates.

The results showed that the students who scored the lowest on the test (bottom quartile) were the most likely to overestimate their performance.

• They estimated that they answered 5.8 questions correctly, when in fact they only got 2.6 right.
• They also thought that they scored better than 68.6% of their peers, when in fact they only did better than 12.5%.
• They also rated their own knowledge of American history as above average, when it was actually far below.

A Story

A bank robber named McArthur Wheeler was arrested in 1995 after robbing two banks in Pittsburgh.

He was easily identified by the security cameras because he did not wear a mask or disguise.

When he was caught, he was shocked and confused. He said that he had applied lemon juice to his face, thinking that it would make him invisible to the cameras.

He had tested his theory by taking a Polaroid picture of himself and not seeing his face on the film.

He did not realize that he had made a mistake with the camera settings, and that his idea was completely absurd.

This is a classic example of the Dunning-Kruger effect in action.

Wheeler was so confident in his own logic and reasoning, but so ignorant of the reality.

He did not have the skills or knowledge to evaluate his own plan or to learn from the feedback of others.

He overestimated his abilities and underestimated the risks.

The History

The Dunning-Kruger effect is not a sign of stupidity, but of human nature.

We all have blind spots and biases that can affect our perception of ourselves and others.

The key is to recognize them and to overcome them.

David Dunning and Justin Kruger showed us this with an experiment. They asked people to rate their own skills in logic, grammar, and humor. Then they tested them on those skills.

The results were shocking.

The people who scored the lowest on the tests also overestimated their abilities the most. They thought they were above average, when they were actually below average.

Why? Maybe ignorance, maybe arrogance.

Why?

Here’s a possible explanation, competence is like a mirror.

We judge ourselves by what we see. But what we see is not always accurate. It’s distorted by our biases, emotions, and expectations.

We think we know more than we do. It’s like looking at a warped reflection.

But asking for feedback from others? That’s where you could get a reality check.

See, we fool ourselves with false confidence and miss the opportunity to improve. Think about it like bragging about a skill when you should be practicing it.

But you can overcome the Dunning-Kruger effect.

Try this:

• Seek honest feedback. Ask for it from people you trust. Listen to it with an open mind.

• Test your knowledge on topics. Challenge yourself with quizzes, puzzles, and problems. Learn from your mistakes.

• Admit your limitations. Be humble about what you don’t know. Be curious about what you can learn.

• One question to guide you all. Ask yourself: How do I know this?

Knowing about the Dunning-Kruger effect is just step one. Acting on it, that’s the leap.

Here’s a framework to help.

The Four Stages of Competence

The four stages of competence is a powerful mental model to help you learn anything faster and better and reduce the chance of you falling victim to the Dunning-Kruger effect.

Here’s how it works.

1. Unconscious Incompetence

You don’t know what you don’t know.

You are blissfully ignorant of your lack of skill.

You think you are better than you are.

This is where the Dunning-Kruger effect kicks in. You overestimate your abilities and underestimate the difficulty of the task.

How to escape this stage?

Seek feedback. Ask for honest opinions from experts and peers. Don’t be afraid of criticism.

Test your knowledge. Take quizzes, exams, or challenges. See how you compare to others.

Recognize your limitations. Admit that you have a lot to learn. Be humble and curious.

2. Conscious Incompetence

You know what you don’t know.

You are painfully aware of your lack of skill.

You realize you need to improve.

This is where the learning process begins. You start to acquire new knowledge and skills.

How to advance in this stage?

Set goals. Define what you want to achieve and how you will measure your progress.

Seek guidance. Find mentors, coaches, or teachers who can help you learn faster and better.

Apply your learning. Practice what you learn. Apply it to real-world situations. Learn by doing.

3. Conscious Competence

You know what you know.

You are confident in your skill.

You can perform well with effort.

This is where the mastery process begins. You start to polish and perfect your skills.

How to excel in this stage?

Practice. Repeat what you learned until it becomes second nature. Aim for deliberate practice.

Automate. Make your skills subconscious and effortless. Reduce the cognitive load.

Optimize. Find ways to improve your performance. Seek feedback and fine-tune your skills.

4. Unconscious Competence

You don’t know what you know.

You are fluent in your skill.

You can perform well with ease.

This is where the innovation process begins. You start to create and expand your skills.

How to innovate in this stage?

Challenge yourself. Seek new and difficult problems. Push yourself beyond your comfort zone.

Explore new domains. Learn new skills or combine existing ones. Cross-pollinate your ideas.

Share your expertise. Teach others what you know. Help them grow and learn from them.

The Four Stages of Competence is a mental model that helps you learn anything faster and better.

It helps you assess your current level of skill and guide you to the next level.

It also helps you avoid the pitfalls of the Dunning-Kruger effect by being humble, curious, and open-minded.

Remember, it’s not about how good you think you are. It’s about how good you can be.

So, the next time you feel confident about something, question it.

Are you seeing yourself clearly, or are you blinded by your ego?

It’s not about how good you think you are. It’s about how good you can be.

Focus on the growth, not the illusion.

Question: Self Compassion

Here’s a question on how you treat yourself when you face difficulties:

How often do you practice self-compassion in your life?

Self-compassion is the ability to be kind, understanding, and supportive of yourself when you experience pain, failure, or hardship. It’s the opposite of being harsh, critical, or judgmental of yourself.

Self-compassion is not a sign of weakness, selfishness, or complacency. It’s a sign of strength, resilience, and growth.

Research has shown that self-compassion can have many benefits:

• Reducing stress, anxiety, and depression
• Enhancing well-being, happiness, and optimism
• Increasing self-confidence, self-esteem, and self-acceptance
• Improving relationships, empathy, and compassion for others
• Promoting healthy behaviors, such as exercise, diet, and sleep
• Facilitating learning, creativity, and productivity

Some interesting studies:

• A meta-analysis of 79 studies found that self-compassion was associated with lower psychological distress and higher psychological well-being.
• A study of over 2,000 adults found that self-compassion was positively correlated with self-esteem, self-acceptance, self-confidence, and self-worth, and negatively correlated with self-criticism, self-doubt, self-blame, and self-deprecation.
• A study of over 200 college students found that self-compassion was positively related to academic motivation, performance, and learning goals, and negatively related to academic procrastination, anxiety, and fear of failure.
• A study of over 300 health care workers found that self-compassion was positively associated with physical health and negatively associated with unhealthy behaviors.
• A study of over 100 romantic couples found that self-compassion was positively related to relationship satisfaction, trust, intimacy, and commitment, and negatively related to relationship conflict, insecurity, and resentment.

However, even with the data and the benefits clearly researched, many people struggle with self-compassion. They think that they don’t deserve it, that they need to be perfect, or that they need to punish themselves for their mistakes.

Some people might also worry that self-compassion will make them lazy, indulgent, or irresponsible. But these are all myths.

Self-compassion is not about avoiding responsibility, lowering your standards, or ignoring your problems. It’s about acknowledging your reality, accepting your imperfections, and taking care of your needs.

Self-compassion is not about giving up, giving in, or giving yourself a free pass. It’s about giving yourself a break, giving yourself a chance, and giving yourself some love.

This week, try to practice self-compassion in your daily life.

Ask yourself:

• How do I talk to myself when I face a challenge, make a mistake, or feel inadequate?
• Do I use words of kindness, encouragement, and support, or words of criticism, blame, and shame?
• How do I treat myself when I feel hurt, disappointed, or frustrated?
• Do I offer myself comfort, care, and understanding, or do I ignore, deny, or suppress my feelings?
• How do I cope with stress, pressure, or uncertainty?
• Do I use healthy strategies, such as relaxation, meditation, or hobbies, or do I use unhealthy strategies, such as avoidance, distraction, or substance abuse?

If you notice that you lack self-compassion, don’t beat yourself up. Instead, use this as an opportunity to practice it.

Here are some simple ways to cultivate self-compassion:

• Use positive affirmations, such as “I am doing my best”, “I am worthy of love”, or “I am enough”.
• Write a letter to yourself, as if you were writing to a friend, expressing empathy, validation, and encouragement.
• Practice mindfulness, which is the awareness of your present moment experience, without judgment or resistance.
• Do something that makes you happy, such as listening to music, reading a book, or spending time with a loved one.
• Seek support from others who can listen, understand, and empathize with you.

Remember, self-compassion is not a luxury, it’s a necessity. You deserve to be treated with kindness, respect, and dignity, especially by yourself.

Quote: Second & Third Order Consequences

“Failing to consider second- and third-order consequences is the cause of a lot of painfully bad decisions, and it is especially deadly when the first inferior option confirms your own biases. Never seize on the first available option, no matter how good it seems, before you’ve asked questions and explored.” - Ray Dalio

It’s about the ripple effects of your actions.

Successful people don’t just think about the immediate outcomes of their choices. They think about the long-term implications and trade-offs.

First-order thinking is easy and tempting. It’s what most people do.

Second-order thinking is hard and rare. It’s what sets you apart.

Consider Jeff Bezos. He didn’t just see the internet as a way to sell books. He saw it as a way to transform commerce and customer experience.

He didn’t just focus on short-term profits. He invested in long-term growth and innovation.

He didn’t just react to the market. He anticipated and shaped the future.

Second-order thinking is the key to making better decisions.

• It helps you avoid unintended consequences and costly mistakes.
• It helps you find hidden opportunities and creative solutions.
• It helps you outsmart the competition and achieve your goals.

How do you practice second-order thinking?

Ask yourself: And then what? What will happen next? What are the side effects? What are the alternatives? How will this look in 10 years?

Don’t settle for the obvious answer. Dig deeper. Challenge your assumptions. Seek feedback. Learn from others.

When you wake up today, think:

Are you just skimming the surface? Or are you diving into the depths?

Because after all,

The quality of your thinking determines the quality of your life.

Podcast:

1. David Greenberg - Ex-Chair NYMEX ($12 Billion Commodities Exchange)

| Spotify | Apple

David Douglas Greenberg has over 30 years of experience in the financial industry, serving as an executive chair and board member of the New York Mercantile Exchange (NYMEX), the world’s largest physical commodities exchange. He was part of the team that led the exchange to be the first to reopen after the 9/11 attacks. He played a key role in growing the NYMEX from a valuation of $800 million to $12 billion.

2. David Greene - Host of Bigger Pockets Podcast

| Spotify | Apple

David Greene is a former police officer turned real estate investor, agent, and author. He is the co-host of the BiggerPockets Real Estate Podcast, one of the most popular and influential podcasts in the industry. He is also the author of four best-selling books published by BiggerPockets including his latest book, the Pillars of Wealth. David has been featured on CNN, Forbes, HGTV, and other media outlets as a leading expert on real estate investing, wealth building, and personal development.

3. How To Unlock Your Inner Polymath (And Think Like Leonardo da Vinci)

| Spotify | Apple

In this Lessons episode we explore how to think like Leonardo da Vinci, a polymath who mastered the art of blending disciplines to unlock unprecedented creativity and innovation.

Article: The Netflix Effect

I’ve been a big fan of Scott Galloway’s podcast podcast for a while, and I think he really did Netflix justice in the written analysis he put together below. He examines how Netflix continues to defy the odds and retain its Iron Throne in streaming. There are some great business / professional / entrepreneur lessons.

Some of the highlights:

• How Netflix's international expansion and content strategy paid off during the writers' strike
• Why the streamer's continued investment in originals separates it from the competition
• How the platform is raising prices thanks to its new utility status
• The threats posed by TikTok and YouTube

Read it here.

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