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The Dunning-Krueger Effect in Business, or Why You need Business Analysis?

The Dunning-Kruger Effect is a cognitive bias where the unskilled rate their ability higher than the average while competent people undervalue their ability. The reason unskilled people suffer from the Dunning-Kruger effect is that their own incompetence makes them unable to rate themselves. Compare to Imposter Syndrome, it is a feeling that people who have succeeded at something experience, believing that it was just luck or chance that lead to their success, not their abilities. Instead, Dunning-Kruger subjects believe they are very intelligent and tend to over-inflate their abilities because they can’t recognize their incompetence in comparison to others

Hurting your business

Some people think that they may harmlessly take a successful experience from one market, company or product, bring it to the other, and to conquer the world. Due to these reasons, people fail to recognize their own lack of competences (in some cases even inadequacy of the behavior). This is exactly the opposite of the way it should be, right? We would like to think that we can recognize our weaknesses, but the Dunning-Kruger Effect (which has been reaffirmed by many follow-up studies) says that we often don’t. Dunning and Kruger found that people whose knowledge puts them in the bottom 12 percent thought they were in the top 65 percent.

What you can do?

Stay humble about what you think you know. Our product research is limited by our cognitive bias, we often only research what we think we don’t know. Until we’re approaching the roughly 10,000 hours of studying and practice needed to become an expert on a topic (according to Malcolm Gladwell’s 2008 Outliers), we should humbly consider ourselves amateurs on that field and strive to learn all we can when doing business for clients.

Being receptive to advice is critical for founders because they have to get so many things right when building a company. This is basically generalized overconfidence: instead of believing you are right about everything in some field, you believe you are right about everything. If you focus on the areas where you’re strongest relative to everyone else, you are naturally forced to delegate everything else to other people and to trust them to execute. Listen to experts in skills likes sales or domains like SaaS, and get their feedback and advice on what you’re doing.

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