In the day job, I partially endorse Daniel Kahneman's claim that overconfidence can be a damaging cognitive bias.

However, as Niels Bohr said, the opposite of a great truth is another great truth. The other night, I was reminded that under-confidence also has costs. In our pub quiz one of my team-mates suggested several answers but with little confidence, causing our captain to choose other answers. However, she was right every time and our captain wrong. The upshot was that we slumped to an abject defeat to the bottom team in the league. Had Linda been more confident, we'd have won.

The point generalizes. The old saying, "faint heart never won fair lady" reminds us of the cost of under-confidence.

In Human Inference, Richard Nisbet and Lee Ross wrote:

We probably would have few novelists, actors or scientists if all potential aspirants to these careers took action based on a normatively justifiable probability of success. We might also have few new products, new medical procedures, new political movements or new scientific theories.

They might have added that we would have even fewer if people had been under-confident. Rick's right that overconfidence can generate too much self-employment. But under-confidence gives us too little*.

This reminds me that one of the under-rated skills in life is the ability to know one's skill. This might well be one of the keys to success of Berkshire Hathaway. Charlie Munger has said of himself and Warren Buffett that: "We know the edge of our competency better than most." There are two elements to this. One is knowing what you don't know - not being overconfident. The other is knowing what you do know - in Buffett and Munger's case, that it's a good idea to bet against beta, especially when you have (pdf) a low cost of capital.

This is perhaps especially clear in sport. In most sports, one often has a choice between a risky option and a safe one and the wrong choice has costs. The overconfident batsman tries risky shots too much and loses his wicket; the overconfident footballer tries the risky pass and loses possession. But the under-confident batsman plays too defensively and the under-confident footballer passes sideways too much - as Manyoo fans might have noticed this season.

It's in this context that Mesut Ozil stands out. One of his great abilities is to keep the ball even in attacking areas: he's completed 87.9% of passes in the Premier League this season, a ratio usually associated with defensive players who play safer balls; Wayne Rooney's ratio, for example, is only 81.4%. A big reason for this is that he knows his skill - when to play safe and when to play the attacking ball. As Arsene says, he's "like a musician who always plays the right note, and at the right moment."

What matters is that one's confidence be properly calibrated - neither too high, not too low. Very few of us achieve this.

* I'm not sure the distinction between self-employment, innovation and entrepreneurship is a sharp one. Spotting that a town could use another tea shop is a sort of innovation.