Overconfidence and Dunning-Kruger effect

People are typically overconfident. They tend to overestimate their abilities in all kinds of areas, ranging from sense of humor, grammar, reasoning skills, to driving skills. Interestingly, this effect is most pronounced among people who have the least skill. Those with a test score in the 12th percentile would on average estimate themselves to be in the 62nd percentile. The Optimism Bias by Tali Sharot gives a lot of examples and corresponding explanation for this prevalent phenomenon of overconfidence, claiming that our brains are irrationally optimistic.

One of my favorite academic papers is The Trouble with Overconfidence by Don Moore and Paul Healy, published in Psychological Review in 2008. They use Bayesian updating to show that even under the assumption of rationality, this phenomenon of overconfidence can appear.

"After experiencing a task, people often have imperfect information about their own performances but even worse information about the performances of others. As a result, people’s post-task estimates of themselves are regressive, and their estimates of others are even more regressive."

Rephrase their conclusion in plain English: when a task is easy, people underestimate their performance but underestimate the performance of others even more, so they think they perform better than others do. When trying to finish a difficult task, however, people overestimate how well they perform but overestimate even more how others perform, so they think others perform better than they do.