Don’t get too overconfident or you might end up stuck with a David Jones
Do you think you are an above-average driver? About 90% of those reading this will think so. But of course that is statistically impossible. About half of you will be wrong. So where does this overconfidence in your ability come from? It is a common cognitive trap we are all susceptible to. Familiarising yourself with what it means, and what to do about it, will undoubtedly improve your decision-making.
One such example of a strategic business decision gone wrong comes from a company all South Africans are familiar with.after releasing its financial results. The company was able to slash its debt and reduce net borrowings by 91% due largely to selling significant properties of David Jones, an upmarket department store in Australia that Woolworths bought in 2014.
Looking back, the decision to pay big bucks for David Jones was a function of overconfidence. On this occasion, such overconfidence was a result of overestimation and overprecision — excessive faith that they knew thetruth, believing the market was missing something. This was borne out by their forecasts for the expected earnings from their acquisition: they predicted returns more than three times greater than what materialised.
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