Over-estimation is our tendency to think that we are better, smarter, faster, more capable, more attractive, more popular (and so on) than we actually are. As a consequence, we overestimate how much we will accomplish in a limited amount of time or believe we have more control than we actually do.
We view ourselves positively as opposed to accurately. People tend to believe that the group to which they belong are superior to other groups. These effects operate at unconscious level and are stronger when people are responding quickly and automatically. We also overestimate our own performance, abilities and talents. We evaluate ourselves better than we actually are. We strive to enact desirable traits such as loyalty, kindness and cleanness.
The illusion of control
Sometimes people think they have more control over circumstances than they actually do. People believe they can exert control over uncontrollable events. We also cling superstitious beliefs about performance and competitive success. This can also occur in reverse. When people have a great deal of control, they tend to underestimate it. For instance: getting scanned for cancer.
The planning fallacy
Human beings tend to overestimate the speed at which we will complete projects and tasks. People underestimate the cost and duration of construction projects (e.g. roads, bridges and tunnels). Firms have incentives to make optimistic projections. Optimism increases the likelihood that the project will move forwards and they will get the business.
Often this occurs in the context of large projects that are prone to complications. Major construction, home remodelling, software development projects result time and budget overruns. People fail to anticipate projects’ component parts or the likelihood that complications are likely to arise.
Individuals tend to overestimate the rosiness of our future. Motivated by the fact that savouring the prospect of a rosy future feels good. It feels right to believe in ourselves and boosts our self-esteem. We consistently exaggerate our abilities, control, performance and luck. In contrast, we are could be bitter at disappointment. Individuals could be defensively pessimistic about abilities, status and future performance.
Gains and losses affect our feelings differently. Loss is more painful than the gains are pleasurable. Individuals who are most optimistic about their abilities end up being most disappointed by their outcomes because reality is likely to fall short of their expectations. The easiest way to surpass expectations is to lower them.
Moment of truth
People should manage their expectations strategically. Individuals start with high expectations (unknown future outcomes). The moment we receive actual performance feedback, we tend to reduce our performance expectations (become more pessimistic or optimistic). This mindset enables us to experience the pleasure of positive surprise or at least avoid disappointments of falling short.
Bazerman, M.H. and Moore, D.A., 1994. Judgment in managerial decision making (p. 226). New York: Wiley.