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How to Avoid Costly Mistakes Due to Overconfidence

“The only true wisdom is in knowing you know nothing.”
– Socrates

Ever felt like everything you touch turns to gold?

You’re on a hot streak. That ‘unstoppable’ feeling can be intoxicating.

But it could just be an illusion.

The “Hot Hand Fallacy” is a cognitive bias where we see patterns in random sequences.

Our minds are hardwired to find patterns, even when outcomes are purely chance-based.

This fallacy can lead us to take unnecessary risks.

Let’s dive in:

The Dangers of Overconfidence

In 2013, Tiger Woods won five tournaments in a row.

Then, he tweaked his technique and equipment, banking on his winning streak to continue. But the changes backfired. At the next three events, he missed the cut each time.

Overconfidence that creates a feeling of “I’m on a roll” can derail even the best.

As Michael Jordan said, “I’ve failed over and over in my life…that’s why I succeed.”

True success comes from learning from each outcome, whether win or loss, without bias. Luck plays a bigger role than our overactive pattern-seeking brains like to tell us.

We love the idea of being ‘on a roll’

Hot streaks breed overconfidence, leading to bigger risks and harder falls.

Are you making big bets based on a winning streak?

That’s not a strategy, it’s hope disguised as a strategy.

Your brain loves patterns, but don’t be fooled

Understanding this fallacy can save us from costly mistakes and encourage more clear decision-making.

Our pattern-seeking minds can distort reality and encourage risky bets. It’s exciting riding “waves of luck.” But randomness is often the real player, not some magical winning streak.

Once you ditch the hot hand belief, decision-making shifts.

It’s no longer about riding waves of luck but making choices grounded in reality.

How can you identify the Hot Hand Fallacy in your own thinking?

Watch out for increased confidence after small wins.

Are you discounting failures and taking bigger risks? Discounting failures fuels overconfidence. Keeping a performance diary to analyse outcomes objectively can provide clarity.

Also, accept luck’s role. Past wins alone don’t guarantee future results.

Strategists acknowledge randomness.

The next time you feel euphoric after “wins,” do an independent analysis of each result.

  1. Independent Analysis: Treat each success and failure as standalone events.
  2. Objective Over Emotional: Data beats gut feelings. Always.
  3. Accept Randomness: Luck is part of the game. Plan for it.
  4. Stay Grounded: Remember, past wins don’t predict future success.

Take a moment to reflect on how recognising this fallacy could impact your goals moving forward.

It’s not about dampening optimism — it’s about empowering realistic and strategic thinking.​

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