People are too confident in what they know and underestimate what they don't know

"Findings suggest that people are too confident in what they know and underestimate what they don't know."

enlarge

New research confirms overprecision is a common and robust form of overconfidence in the accuracy of our judgments.

(Credit: © pressmaster / Fotolia)

To scientists, it's known as "Overprecision" -- having to much confidence in the correctness of what we think we know combined with a tendency to discount or downplay what we don't know, i.e., doubting a statement or fact that differs from what we think we know, even when back by solid supporting evidence.

Overprecision can have profound consequences, for example, inflating investors' valuation of their investments, leading physicians to gravitate too quickly to a diagnosis, even making people intolerant of dissenting views.

This is a message to any professional, especially writers and bloggers such as myself, not to get too certain that what we write is right.  It's also a message to readers to not believe everything we read, and to require documentation for statements made.  I am personally guilty of overconfidence, and have to constantly remind myself that I may well be wrong, and to be open to the opinions and beliefs of others.

Easily said, hard in practice.

Research by Albert Mannes of The Wharton School of the University of Pennsylvania and Don Moore of the Haas School of Business at the University of California, Berkeley, published in the current issue of Psychological Science, a journal of the Association for Psychological Science, reveals that the more confident participants were about their estimates of an uncertain quantity, the less they adjusted their estimates in response to feedback about their accuracy and to the costs of being wrong.

"The findings suggest that people are too confident in what they know and underestimate what they don't know," says Mannes.

*  *  *  *  *

 

Story Source:  A. E. Mannes, D. A. Moore. A Behavioral Demonstration of Overconfidence in Judgment. Psychological Science, 2013.

The Facts of the Small Business Survival Rate

Back thirty years ago when I first wrote about small business, a hoary and horrible statistic was bandied about, even by some of the most experienced entrepreneurial pros: "80% of new businesses fail in their first five years." 

This "statistic" has appeared in more places than you can imagine, from the leading small business magazines, books, presentations by employees of SBDCs, the SBA, SCORE, Chambers of Commerce, even professors on the college level - who should know better than to quote un-sourced numbers.  It still shows up in small-business blogs today.

For some years, I searched for a source of that statisitic.  Never found where that number came from, leading me to believe that some self-appointed expert made it up.  To quote a character from the popular television show, M*A*S*H, "Horsepukey." 

Here is the truth about the survival rate of new start up businesses in the U.S. economy from two unimpeachable sources, The Marion Ewing Kauffman Foundation and the SBA.  First from Kauffman:

"By 2011, just over 55 percent of firms in the sample that started in 2004 had permanently closed. The overall survival rate for the 2004 startups was 44.6 percent by the end of 2011, compared with 49.3 percent for yearend 2010, which is comparable to survival rates noted by the Small Business Administration and other government agencies."*

And now from the SBA:

What is the survival rate for new firms?

"Seven out of 10 new employer firms survive at least 2 years, half at least 5 years, a third at least 10 years, and a quarter stay in business 15 years or more.

"Census data report that 69 percent of new employer establishments born to new firms in 2000 survived at least 2 years, and 51 percent survived 5 or more years. Survival rates were similar across states and major industries.

"Bureau of Labor Statistics data on establishment age show that 49 percent of establishments survive 5 years or more; 34 percent survive 10 years or more; and 26 percent survive 15 years or more."**

Ladies and gentlemen of the jury, I rest my case.

*  *  *  *  *

* Source: An Overview of the Kauffman Firm Survey: Results from 2011 Business Activities, Prepared By: Alicia Robb and Joseph Farhat, June 2013. To access this and the derivative reports, click here: Kauffman Firm Survey 2011

** Source: U.S. Dept. of Commerce, Census Bureau, Business Dynamics Statistics; U.S. Dept. of Labor, Bureau of Labor Statistics, BED.  To view the SBA Frequently Asked Questions publication, click here:  SBAFAQ 

Brand Leadership Lost is Rarely Regained

Once a brand’s leadership is lost, that loss is nearly always permanent.

Business history is littered with the remains of fallen giants. Yuban coffee, Fels Naptha laundry soap, Bobbie Brooks, Zenith, Kodak -- all these brands were leaders in their time then they were knocked off the top rung and never got back there again.  New research by Tuck marketing professor Peter Golder shows this story to be all too common.

This research, which is currently available as a working paper through the Marketing Science Institute (see link below), updates and bolsters the authors' 2010 article, "Will You Still Try Me, Will You Still Buy Me, When I'm 64? How Economic Conditions Affect Long-Term Brand Leadership." That paper, the result of a search of business records from 1921 to 2005, tracked market leaders in relation to changes in GDP and inflation. It uncovered two important facts:

1. brand leaders fare better than their competition in economic downturns; and,
2. while 95 percent of leading brands maintain their leadership from one year to another, over a span of decades half of them will lose their top spots.

The most striking finding is that a company faces long odds of regaining brand leadership. During the time period studied, for the categories of clothing, durables, food, household supplies, and personal care, there were 500 brand leaders. Of those, 330 held on to their top rank. When leadership changed hands, an old leader regained leadership only 4 percent of the time -- 18 instances out of 500 leaders. "That's very unlikely," Golder says, "and it's very interesting because it suggests that firms really need to fight for leadership when it's at risk."

 

Losing leadership is a sign that something's going wrong  

The paper doesn't venture to explain this phenomenon, but Golder offers a few ideas. "Losing leadership is a sign that something's going wrong," he says. "It's not just a random event. Something's happening where your firm is slipping, your competitor is doing something right, or the consumers are just moving away from you for taste reasons." Whatever the case, losing a leadership position can begin a cascade of negativity for a brand, driving it further into the ground.

 

The world in general -- retailers, employees, consumers -- is more excited about growing rather than shrinking brands, and it allocates its support accordingly. Externally, this dwindling excitement is manifested by retailers and consumers moving on to another brand. Internally, especially within big firms, slowing brands struggle for attention. "Are the resources of a firm going to go to the growing brand or the declining brand?" asks Golder. "More often, they go to the growing brand."

 

Brand battles are rare 

The gap between the number 1 and number 2 brands is on average more than 10 percent -- a big difference in market share, sales, and revenues. Contrary to popular belief, classic "brand battles" -- like those between Crest and Colgate, and Ford and Chevy -- are actually quite rare. More often than not, there's an obvious leader and a pack of smaller brands scurrying for the leftovers.

  

Dropping brands have three quarters to recover

Golder's new dataset allowed for another important insight on the window of opportunity for regaining leadership once it's lost. In a word, it's small. Since Golder could track leadership on a quarterly basis, he was able to discern that the number of past leading brands that regain leadership drops off severely after three quarters.

  

"As a manager, you should be very careful once you get near the point of losing leadership," Golder warns. "It has greater long term impacts than you might realize."

*  *  *  *  *

  

  

Story Source:  Dartmouth College, Tuck School of Business (2013, June 6). Authors: Peter Golder, Julie R. Irwin and Debanjan Mitra,  Long-Term Market Leadership Persistence: Baselines, Economic Conditions, and Category Types.

For a copy for the working paper: Brand leadership is unlikely to be regained once lost

More Attractive Real Estate Agents Mean Higher Prices and Profits

 "attractiveness is not the 'be all, end all' -- it just helps to tip the scales when competitors are otherwise equally talented or skilled."

At least for real estate agents, it turns out that beauty is indeed more than skin deep.

A recent study of physical attractiveness and how it impacts real estate brokers' pay and productivity shows that the more attractive the real estate agent, the higher the listing price of the home for sale.

 

Those higher listings lead to higher sales prices, meaning that beauty enhances an agent's wage, said the report by Frank Mixon, professor of economics at Columbus State University's Turner College of Business.

 

He collaborated on the article, "Broker beauty and boon: a study of physical attractiveness and its effect on real estate brokers' income and productivity." with Sean P. Salter, from the Jennings A. Jones College of Business at Middle Tennessee State University and Ernest W. King from the College of Business at the University of Southern Mississippi. The article was published in the Applied Financial Economics journal last year.

 

To reach their conclusions, the professors asked 402 people to look at photographs of real estate agents. The pictures were taken from the agents' websites. Respondents were asked to rate each individual depicted for "physical attractiveness or beauty" on a scale of one to 10, with one representing "very unattractive" and 10 representing "very attractive."

 

Researchers then compared those figures to Multiple Listing Service data regarding transactions for properties that were listed between June, 2000 and November, 2007. Researchers looked at listing prices, sales prices and the time properties spent on the market before the sale was completed.

 

In general, the research found that the agents who were rated more attractive had listings with higher prices and larger commissions, which comes from higher sales prices for attractive agents.

 

"Given the nature of the brokerage system, this confirms our theory that beauty enhances an agent's wage," the researchers wrote in the report.

 

"The results weren't surprising to me," Mixon said. "There is a growing literature in economics that relates physical attractiveness to productivity in the workplace, and to all sorts of choices people make."

But while prices were found to be higher for more attractive agents, the research noted that things may equal out in the long run because agents who were rated "less attractive" had more listings and more sales. The researchers note that this may "suggest that more attractive agents may be using beauty to supplement, rather than to complement, other productive activities."

 

Mixon, who also is studying the impact of physical attractiveness in other areas, said it is important to note that "attractiveness is not the 'be all, end all' -- it just helps to tip the scales when competitors are otherwise equally talented or skilled."

*  *  *  *  *

The complete idiot's guide to successful dressing
by Karyn Repinski

Story Source:  Sean P. Salter, Franklin G. Mixon, Ernest W. King. Broker beauty and boon: a study of physical attractiveness and its effect on real estate brokers’ income and productivity. Applied Financial Economics, 2012.