Demonetisation, Modi, and the illusion of confidence

What’s ‘illusion of confidence’?

It’s a concept propounded by psychologists David Dunning and Justin Kruger at Cornell University in 1999 to explain why some individuals suffer from “illusory superiority” and mistakenly assess their ability to be much higher than it really is. It’s called the Dunning-Kruger effect.

What’s that got to do with demonetisation?

The PM’s handling of the demonetisation exercise, and his repeated oversimplification of the problem of (and the solution to) black money, represents a classic example of the Dunning-Kruger effect at work. More generally, it is a manifestation of the failing among some individuals to overestimate their abilities and underestimate their shortcomings.

Tell me more.

The experiments detected a pattern of overestimating one’s own competence across a range of skills — from operating a motor vehicle to playing chess to reading comprehension. Much the same ‘illusion of superiority’ is manifest in the Modi government’s instincts and execution of the demonetisation move. It’s not just Modi who has staked so much of his personal political goodwill on the success of this exercise, even his close circle of advisers have evidently proven susceptible to this cognitive bias.

On what basis do you say that?

Combating black money is, of course, a worthy objective, but given the corrupt entrenchments in the system, the Government needed to think through the consequences of demonetisation and make it fool-proof. The daily whack-a-mole that finance ministry and RBI officials have been playing with cash deposit and withdrawal rules demonstrates that not all the scenarios were explored ahead of the announcement.

But weren’t they responding to a fast-evolving situation?

To an extent. But the daily barrage of reports of corrupt or complicit bankers making a monkey of the demonetisation exercise shows up the Government as having overestimated its capability to find a quick fix and underestimated the capacity of systemic entrenchments to game the system. It manifests itself in another illusionary characteristic as well.

Which is?

In their book, The Invisible Gorilla , Christopher Chabris and Daniel Simons note that people have a tendency to interpret feedback about their abilities in the most positive light possible. “We tend to think that our good performances reflect our superior abilities, while our mistakes are ‘accidental’, ‘inadvertent’, or a result of circumstances beyond our control,” they write. That sort of ties in with the state of denial in which the government has enveloped itself. And the attempts to blame unnamed “advisers” for the inadequacy of currency notes in circulation and the other failings. To be fair, the Dunning-Kruger effect shows up in many everyday situations.

Such as?

Chabris and Simons point out that those who are learning to drive tend to be more confident of their skill than they ought to be on merits. And newly promoted managers are likely to display “unwarranted certainty” in their own actions. Most people tend to consider themselves “above average” in attractiveness, which is a statistical impossibility.

Is there an antidote to this?

At an individual level, acquiring competence actually dispels the illusion of confidence. The more competent we become, the more we become aware of the limitations of our capability. That’s not only humbling, it also keeps us from embarking on misadventures without adequate application of mind.

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