Dunning-Kruger Effect

When I was working as a consultant with McKinsey, I wanted to become an investor. And I was convinced that investing would be a cakewalk. After all, we were trained in problem-solving and logical thinking.

What else would you need?

I then joined a private equity investment firm, where we had all the resources one could imagine. The PE/VC funds got the pick of top-quality talent. We had top financial services and law firms assisting us with due diligence. We had access to top sector experts for advice.

Despite that, it was very hard to make good returns. What earlier seemed a cakewalk now appeared to be really hard.

Why did I then feel so confident earlier? Because I knew very little about investing.

In fact, there is a name for this phenomenon. It is called Dunning-Kruger Effect: “The less you know, the more confident you are. The more you know, the less confident you are.”

But there is a serious upside to this ignorance. In fact, almost every entrepreneur I know has struggled way more than they expected. And had they known how painful it would be, many would have probably not even started.

So is ignorance bliss?

Not really, but often, it is unavoidable to start with. As we learn more, we realize how little we know and our confidence dips. But at some point, we learn enough to become confident again.

This confidence, on the other side of ignorance, is what we are all seeking.


– Rajan

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