Will the Dunning-Kruger Effect Take Down Mortgage Companies?

Patricia Sherlock

For those unfamiliar with the Dunning-Kruger Effect (DKE), it is a psychological phenomenon where certain individuals have a cognitive bias that prompts them to over-estimate their abilities because they can’t grasp what they don’t know.  In simple terms, these people think they are smarter than they really are. In mortgage banking, DKE individuals can be frustrating to manage because they are closed-minded when it comes to making changes in their sales models that would enable them to be more successful.

In my recent conversations with experienced mortgage executives, many were in disbelief that their originators didn’t want to improve their selling performance by learning something new. Why wouldn’t an individual or a group not want to do better? It seems incomprehensible!

Although much has been written about this topic, current research in psychology has shed new light on it. Carol Dweck, a Stanford University professor, claims in her best-seller “MindSet” that success is a mental choice made early in life in how an individual approaches new experiences. According to Dweck, the good news is that mindsets can be changed. She notes that a fixed mindset is based on fear of failing. Conversely, individuals with a growth mindset are willing to learn and take action. If they fail, they don’t take it personally.

Individuals with a fixed mindset have an internal dialogue that has them constantly judging themselves in a negative manner. As a result, learning something new presents a risk to their mental state and causes them to feel that if they don’t understand what they are learning quickly or it doesn’t come to them easily, they are “losers.”  As a result, they avoid any circumstances that create this experience of feeling like a fraud.

As a sales trainer, I often see companies putting in a training class for fixed mindset sales professionals that will never properly correct the issues at hand. DKE sales professionals require personal attention by a professional coach to address their underlying problems. Even better, I advise my clients to determine during the interview process whether a sales candidate has a growth mindset before the individual is hired.

This made me think, is it even possible to have a sales organization comprised of fixed mindset individuals? Where the environment is such that the sales organization does not accept or encourage individuals to learn and to fail? Where changing your selling techniques is not encouraged or invested in? The simple answer is yes. I certainly see mortgage groups that are stuck in this holding pattern. They have chosen to stay the course while everything around them is undergoing dramatic change. They make minor adjustments to the group’s practices but avoiding making any substantial changes. A perfect example is companies whose policies on social media marketing for their originators do not reflect today’s selling methods. They resist social media like the plague and do not recognize that communication tools have changed.

Another example of stagnant thinking is when a company fails to prioritize continuing education and learning new selling skills. I have even seen companies boast to potential sales candidates that they don’t have to attend any training, as if that were a good strategy! Their pitch is join them and originate loans and we won’t bother you by asking you to get better and improve your selling habits.

Learning something new by definition requires failing. No one gets a skill right the first time when putting new learning into practice. As Michael Jordan has often said, the reason for his success was that he kept shooting baskets even when he was missing them initially in a game. He had the mindset to not take failing personally.

I think selling and sports share many of the same characteristics. Both disciplines ask individuals what behaviors they will deploy— will they have a growth or fixed mindset? Both selling and sports require a commitment to be constantly changing and learning in order to win. Staying the same is not an option, even if the individual has been successful in the past.

With the decline of interest rates last week, mortgage bankers will be tested again to see if they have learned anything from the refinance years. At the company level, will the industry hire more originators to add “warm bodies” or will they chart a better strategy with something new and different? Will originators say they are too busy to learn new sales strategies and improve their results? Will they make social media part of their prospecting efforts even when their pipelines are full of refinancing volume?

In my view, DKE sales professionals won’t survive long-term in our world of constant change. This is the ultimate quandary for every company and originator: Are they operating with a fixed-mindset or embracing a growth mindset?

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