Is ChatGPT as Overconfident as Humans?
“It’s not what we don’t know that hurts, it’s what we know for sure that just ain’t so.”
The quote above is often attributed to Mark Twain. Ironically, the authorship of this quote being somewhat uncertain, beautifully illustrates the very point it makes. Nevertheless, the quote accurately describes the dangers of humans being overconfident. Put into quantitative terms, being overconfident is assigning higher probabilities to items than what should be the case. For example, if I’m asked to give a 90% confidence interval for 100 questions, the correct answers should be between my stated bounds 90% of the time. If it is less than 90%, I’m overconfident, and if it’s more than 90% I’m underconfident.
There have been many peer-reviewed papers on this topic that reveal humans, regardless of field or expertise, are broadly overconfident in providing probabilistic estimates. Data collected by HDR on calibration performance supports this conclusion. When participants prior to any sort of training were asked to provide 90% confidence intervals for a set of questions, on average, only 55% of answers fell within their stated ranges.
An example from our Calibration Training shows a group only getting 67% of questions within their stated ranges. Here the estimators’ lower and upper bound responses are normalized as values between -1 and 1. If the correct answer is outside their range, it falls above or below -1 and 1 on the graph. The red dots represent outliers where the response wasn’t just wrong but considerably far off.
So how does AI stack up against humans here? In order to compare the performance of AI relative to human estimators, we asked 18 instances of ChatGPT 4 to provide 90% confidence interval estimates for a set of 20 questions on topics of sports, economics, and other metrics that are easily verifiable. This resulted in a total of 360 unique estimates. This differed from the trivia questions we use when calibrating human experts as ChatGPT 4 has access to all that information. Remember, the goal of calibration is not to answer questions correctly but to accurately reflect one’s own uncertainty. Trivia questions are used in our training because immediate feedback can be provided to individuals, which is essential in improving performance. To replicate this effect with AI, we limited the questions to ones that had actual answers manifest sometime between September 2021 (the data cutoff point for ChatGPT) and August 2023. An example of such a question is “How much will the top-grossing film earn internationally at the box office in 2022?”. This way we could evaluate whether the actual value (when analyzed retrospectively) fell within the estimated bounds by ChatGPT 4.
The results indicated below show the average calibration of the ChatGPT instance to be 60.28%, well below the 90% level to be considered calibrated. Interestingly, this is just slightly better than the average for humans. If ranked amongst humans, ChatGPT 4’s performance would rank at the 60th percentile from our sample.
If we applied this average level of human overconfidence toward hypothetical real-world cases, we would drastically underestimate the likelihood of extreme scenarios. For example, if a cybersecurity expert estimated financial losses to be between $10 – $50 million when a data breach occurs, they are stating there is only a 5% chance of losing more than $50 million. However, if they are as overconfident as the average human, the actual probability would be closer to 22.5%.
As far as humans go, there is some good news. Being accurately calibrated is not some innate talent determined by genetics, but a skill that can be taught and improved upon. Papers and studies provide conclusive evidence that humans can greatly improve their ability to give probabilistic estimates. HDR built upon these studies and developed online training that is specifically designed to improve individual human calibration for probabilistic estimates. Before training the average calibration level was 55% when trying to provide a 90% confidence interval for an uncertain quantity. By the end of training, this improved to 85%. Humans were able to better understand their own uncertainty and translate it into useful quantitative terms. 
As we begin to rely more on language models, it is essential that we understand the uncertainty in the output they produce. In a follow-up and more in-depth study, HDR will be testing to see whether we can train ChatGPT and other language models to assess probabilistic estimates more accurately, and not fall victim to overconfidence or as Twain might put it “thinking what we know for sure that just ain’t so.”
Find out more about our state-of-the-art Calibration Training here
Tab 1…., Tab 2…., Tab 1.., Tab 2. I was anxiously clicking back and forth between two tabs on Zillow.com for the DC area. One shows the “For Sale” homes in a popular young professional neighborhood, and the other “For Rent” in the same area. Two nearly identical townhouse apartments were on the market, one for a selling price of $375K and the other listed for rent at $1,995 per month. When Googled “Is it better to buy or rent” the results give everyone’s opinion from self-proclaimed financial gurus prophesizing the common adage “Renting is for Suckers” to van living pseudo-philosophers who subscribe to the belief that “You don’t want to be tied down to one place man.” Even Chat-GPT gives me a very ambivalent answer stating, “The decision between buying and renting is complex and depends on many uncertain factors”. 
Fortunately, the company I work for Hubbard Decision Research (HDR), specializes in making decisions given many uncertain factors. Applied Information Economics (AIE), developed by HDR’s founder Douglas Hubbard, provides a practical statistical framework for making this decision or others with high degrees of uncertainty. It employs methods proven by a large body of peer-reviewed academic research and empirical evidence on improving human expert judgments. As a 
Step 1: Define the Decision Should I buy or rent an apartment? Given that I don’t have any personal preference for homeownership itself, which decision is more likely to lead to a better financial outcome? Step 2: Model What We Know Now 
To model this decision, a Monte Carlo simulation was used to generate 1,000 different possible scenarios based on defined probability distributions for the variables that influence the decision. This may sound complicated at first glance. References to simulations bring up mental images of the Matrix or Dr. Strange using the Time Stone to see 14 million different simulations and only one way to defeat Thanos. But when explained, it’s quite straightforward. Rather than using a fixed value for a variable I’m unsure about such as “Time until reselling of home”, I use a range with a confidence interval. I’m not sure how long I would potentially live in the apartment, but I’m 90% sure it would be between 3-15 years. While I may not possess an infinity stone to see all these simulations, I do possess a tool equally as powerful for practical decision-making: Excel. In Excel, standard cashflow models were built to show how my financial inflows and outflows would compare if I rented or bought one of the apartments, and the net present value (NPV) of the difference was calculated. 
These cashflows were calculated based on 17 different variables that have an impact on the decision. For variables, I am uncertain about, the model randomly samples from a confidence interval provided. The Model repeats this 1000 times and records the Simulated Value, and Cashflows for each simulation. 
Based on the recorded simulated values and cashflows, the model generates a probability distribution for possible NPVs, which will suggest an informed decision. If the expected NPV (average NPV across all situations) is positive, the decision should be to buy; if it is negative, the decision should be to rent. 
The big caveat is this is based on a probability-weighted outcome, and there is a chance the model suggests the wrong decision. However, there are ways to reduce this probability by conducting additional measurements. Step 3: Measure What Matters: One of the benefits of using Monte Carlo simulations versus deterministic models with fixed values is that we can calculate the expected value of perfect information (EVPI). It is how much a person should be willing to pay to eliminate their uncertainty about a variable. The calculation is essentially the probability of being wrong multiplied by the cost of being wrong. 
By measuring and ranking EVPIs, we obtain a practical list of the most important uncertain variables to spend time measuring or conducting additional analysis on. If initially, I’m unsure what my mortgage rate would be and give a 90% confidence range of between 4-9%, the maximum I would be willing to pay a bank to give me a precise mortgage quote guarantee would be the EVPI. In this case $1,407. 
The cost for me of spending 15 minutes to get an online mortgage quote is well below this EVPI value. After doing so, I received a quote of 6.7%. Replacing this range with the fixed value and rerunning the model results in a narrower distribution of NPVs as seen below and thus reducing my uncertainty about the decision. 
Changing the mortgage rate from a range to a constant also changes the EVPIs of other variables. While in the original model, I had 4 variables with EVPI values, the updated model shows the only variable worth conducting additional measurement on is the estimated annual increases in home prices over the period of ownership. Unfortunately for me, I do not have a magic crystal ball, nor an oracle I can con pay to tell me precisely what home prices will do in the future. I could spend hours researching the market mechanisms of home price increases to come up with narrower range estimates for the lower and upper bounds. However, based on the EVPI, I do not think the slight reduction in uncertainty is worth it. I can confidently move on to making my decision. 
Step 4: Make Better Decisions: 
The final model results show the expected value of buying versus renting the apartment is $-79,072. In 93.8% of the simulations, I would be better off renting the apartment vs buying the apartment. This conclusion could change as new information becomes available and if mortgage rates start to decrease, but for now I can very confidently make the decision that I’m financially better off renting than buying. Other Applications of AIE: This was a simple example of how Applied Information Economics can improve personal financial decisions. The same steps can be applied to practical large-scale business investments. At Hubbard Decision Research, we routinely apply the same step-by-step process to multi-million or even multi-billion-dollar decisions. We also provide training to improve our client’s ability to quantify anything, build probabilistic models, and not only make better decisions but make better decision-makers. For more information, explore the rest of the website or 