Dunning-Kruger Effect

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Coined in 1999 by then-Cornell psychologists David Dunning and Justin Kruger, the eponymous Dunning-Kruger Effect is a cognitive bias whereby people who are incompetent at something are unable to recognize their own incompetence. And not only do they fail to recognize their incompetence, but they’re also likely to feel confident that they actually are competent.

The Dunning-Kruger effect on business

The Dunning-Kruger effect can also affect businesses, particularly when new products or concepts are introduced into the market. For example, the introduction of digital currency and blockchain technology resulted in the rapid formation of many new entrepreneurial companies. Unfortunately, many lacked the required knowledge and awareness to understand their mistakes before they impacted their viability. This initial overconfidence can also affect businesses that are unwilling to take the educated advice of other professionals. Legal representation, accounting, and financial planning are tasks that some businesses attempt to save money on because they genuinely believe they have the required skills. Of course, the consequences of doing so are often financially disastrous.

See Also

Cognitive Bias