Why The Dunning-Kruger Effect Is Ruining Your Business


Do you remember the first time you were promoted to a position that required you to determine the compensation of people underneath you? Or even worse, have you ever worked in a company where someone made the social faux pau of discussing their salary and it led to all sorts of comparisons, complaints, and sore egos? One of the things I learned very early in my work career is that most people think they are worth more money than everyone else they work with. People tend to have a very poor sense of where they really rank in the company hierarchy. This happens because of an idea from psychology known as the Dunning-Kruger effect, and it could be doing serious harm in your company.

The essence of the Dunning-Kruger effect is that "ignorance more frequently begets confidence than knowledge." Studies have shown that the most incompetent individuals are the ones that are most convinced of their competence. At work this translates into lots of incompetent people who think they are superstars. And what is worse is that if you have a manager that doesn't closely supervise work, he or she may judge performance based on outward appearances using information like the confidence with which these incompetent blockheads speak.

An important corollary of this effect is that the most competent people often underestimate their competence. This is a result of how you frame knowledge. The more you know, the more you focus on what you don't know. For instance, people who can name 15 of the 50 state capitals tend to think "I know 15." People who know 45 of the 50 state capitals tend to think "I don't know 5." I've experienced the same thing at work. When I worked as an engineer designing electronics for military applications, one of our best problem solvers was constantly overlooked by management. He was one of the go-to guys, the kind that you pull in when you have a problem that no one can figure out, but our organizational structure was such that the people who controlled your promotions were usually not the people you worked for. As a result, we had to basically start an internal campaign to get him promoted when many of his peers made it to the next level while he was overlooked. All the while, a few engineers who could talk better than they could actually perform were promoted ahead of him.

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So how do you minimize the Dunning-Kruger effect at your place of work? Here are a few ideas:
1. Use as many measurable standards of performance as possible. Even idiots have a difficult time refuting concrete performance goals.

2. Encourage dissension and debate. This is tough, because if this is not handled properly, it can build a culture of negativity and risk aversion. Your goal shouldn't be to avoid risk, just to expose and understand it.

3. Show confidence in your best employees, even when they don't have confidence in themselves.

If you have your own first hand experiences with this, or ideas about how to prevent it, feel free to leave them in the comments section. Or write your own post and send me a note so I can link to it.

  • Great post. Very interesting and especially important for human resources professionals to know. I blogged about it and put your appeal for more information on mine as well.

  • I’ve intuitively known about this effect but, never knew what it was called. As a small business owner the biggest asset you could possibly have is motivated employees.

    Here are a couple of ideas to help minimize Dunning Kruger effect.

    1) Promote people after doing the same due diligence that you do for new hires. I find a quick meeting with the direct supervisor and related department heads to be extremely effective. After the meeting have a one on one with the direct supervisor and the department head and ask the direct supervisor to provide a recommendation. Debate, discuss, play devils advocate, but in the end make it the direct supervisors decision. Immediately move into compensation so the whole chain of command knows the value of the employee and how compensation is determined.

    2) If an employee consistently feels they are not fairly compensated for their work, but by most measures they are, this employee will never be happy. They will be consumed about being under paid and will never make a good supervisor because they will put their wants above their subordinates needs. You need to rid yourself of this rotten apple fast and let the rumor mill deliver the message that one’s importance to the company is determined by their current and future contributions and not by their self assessment.

    3) Have a promote from within policy for new and open positions before hiring a new outside employee. If you have hired right and developed your employees properly, you will be amazed at the talent you have on the payroll. In my company their are two entry level positions – warehouse labor and customer service. Your best warehouse or customer service employee won’t make the best purchasing manager, but they are great replacements for someone who does get promoted to purchasing manager.

    4) Let your managers know that developing their subordinates for promotion is important. I tie 30% of a managers annual raise to subordinate development. Basically address your teams wants and your needs will be met accordingly.

    5) I don’t like your recommendation to encourage debate and dissension about compensation and promotions. In my opinion this should only be done behind closed doors with your management team. The rank and file are bright people and will quickly see how promotion decisions are made and will act in their best interest.

    I’m sure I’ve strayed a bit off subject, but you did ask for comments.


  • I remember discussing this whole study a while back because it came out of my alma mater, Cornell. I don’t think it’s that they are convinced of their competence … but rather, the more incompetent you are at a specific task, the less likely you are able to judge your competence among your peers. For example, if you are a really horrible artist, you think you can do as good as everyone else … and if you are okay at it, you realize you are just OK enough to know to hire someone better … and if you’re brilliant, you tend to think less of yourself. I remember reading this and suddenly seeing how much sense my own field, web development, came into play for this … because I see the stuff that other design houses put out and I just can’t understand why they don’t know how bad their work is. The problem there is that the client has no idea it’s bad, and the design person has no idea as well … and the whole project is a disaster. I’m not sure how you address this from a small business standpoint, other than looking at measurable goals and talking with others – both within the industry and past clients. Sometimes a value in the service a contractor provides can be arbitrary and hard to measure, however, and it turns out to be a trial and error situation.

  • Great post, Rob. Here’s a slight expansion to point 1. “Use” in this sense means that you should use measurable performance standards to set expectations. You should follow up to determine actual performance. And you should evaluate people based on how they perform against those standards. The tough part of this one, if you’re the boss, is that the folks with high confidence and low competence will take up a bunch of your time.

  • Professors at Harvard addressed this in a similar fashion in an article entitled “Competent Jerks, Lovable Fools, and the Formation of Social Networks.” Is it possible that these low performers are very likable? Either way, it’s not in the companies best interest to continue to reward it. A good way to overcome this is to select several high performers and allow them to create their own team to support each other’s efforts. High performers will create tangible results that can be rewarded and made visible to all others. This approach is what I call the “Blitz Approach.” These teams demonstrate an easy method for low performers to improve their skills. As you mentioned, organizations have a difficult time measuring skills and performance. The Blitz Approach sets the stage for higher performance. It’s a self-managed, self-motivating approach.