Accurately gauging what you know — and more importantly, what you don’t — can mean the difference between success and failure as a manager.
For example, a study of 36,000 firms started in France in the 1990s found that entrepreneurs venturing into novel areas were more overconfident, such that their sales growth and hiring underperformed relative to their expectations. It is easy to picture a CEO, emboldened by past successes in consumer goods, entering the tech industry only to watch the company’s value crash because they underestimated the complexities of software development. Similarly, think of how many mergers and acquisitions failed not because of flawed logic but because leaders believed they understood markets or technologies far better than they did.
Warren Buffet famously said, “Know your circle of competence, and stick within it. The size of that circle is not very important; knowing its boundaries, however, is vital.” But knowing one’s circle of competence is easier said than done. Our recent research reveals that feeling like an expert makes people especially prone to draw overly generous boundaries around their competence. We also find that truly being an expert sharpens the ability to define these boundaries more accurately
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