Dunning-Kruger effect and Material adverse effect: Difference between pages

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imported>Doug Williamson
(Expand to contextualise cognitive biases.)
 
imported>Doug Williamson
m (Link with Adverse event page.)
 
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''Behavioural economics''.
(MAE).  


The Dunning-Kruger effect is generally reported as an irrational tendency among certain incompetent individuals systematically to ''overestimate'' their true level of competence.
A clause in a loan agreement.


In simple terms, this aspect of the Dunning-Kruger effect is the reverse of the [[Impostor syndrome]].
It is intended as a 'catch-all' clause and states that if there is a change in the circumstances of the borrower that materially and adversely affects the borrower's ability to repay, then this will constitute an event of default.
 
A possible explanation for the Dunning-Kruger effect is that the skills we need to assess our level of competence in a given task correctly, are exactly the same skills that we need to perform the task itself.  Those lacking in the task 'performance' skills would then, necessarily, lack the 'competence assessment' skills as well.
 
The Dunning-Kruger effect can however be 'cured', with even a relatively moderate amount of appropriate training.
 
 
Such tendencies to assess evidence incorrectly are known collectively as 'cognitive biases'. Affinity bias is another example.
 
 
The Dunning-Kruger effect is strictly defined more broadly, to ''include'' the Impostor syndrome (underconfidence of skilled people) as well as the effect described above (overconfidence of the unskilled).




== See also ==
== See also ==
* [[Affinity bias]]
* [[Event of default]]
* [[Behavioural economics]]
* [[Loan agreement]]
* [[Emotional intelligence]]
* [[Material adverse change]]
* [[Impostor syndrome]]
* [[Adverse event]]


[[Category:Working_effectively_with_others]]
[[Category:Bank_Lending]]
[[Category:Corporate_finance]]
[[Category:Debt_Capital_Markets]]
[[Category:Manage_risks]]
[[Category:Legal_Documentation]]
[[Category:Risk_frameworks]]

Revision as of 07:35, 5 July 2014

(MAE).

A clause in a loan agreement.

It is intended as a 'catch-all' clause and states that if there is a change in the circumstances of the borrower that materially and adversely affects the borrower's ability to repay, then this will constitute an event of default.


See also