In a recent interview with Gallup Management Journal, Cornell psychologist David Dunning talked about why people aren't very good at judging themselves. Why is this important? Because it has a great deal to do with how we recruit and assess applicants.
A big part of the reason we're so bad at accurately judging ourselves is due to our self-serving bias--our tendency to take credit for successes but blame outside factors (other people, equipment) for our failures. This helps our ego out--if we were always blaming ourselves for failures and attributing success to outside factors, we wouldn't be very happy campers. But it has the downside of oftentimes blinding us to the real reason why things happen.
Dr. Dunning covers a wide range of topics in the interview, including gender differences, when overconfidence may be a good thing, employee training, providing feedback, and the serious implications of this phenomenon (e.g., think about doctors judging their skills as being better than they are).
As I said, this is important because a great deal of recruitment and selection is about self-assessment--a prime example is the growing movement toward online training and experience (T&E) questionnaires made easier with the spread of ATS products. Many of these questionnaires are chock full of questions that (no joke) aren't much different than: "How great are you at X?"
But it's not just about T&Es. People make judgments about themselves when deciding what jobs to apply for in the first place. They describe themselves in certain ways during job interviews (when the motivation to make yourself look good is even stronger).
What can we do about it? Simply put, verify, verify, verify. If someone claims to be the greatest Java programmer on the planet, make them show you. If they claim to be a great orator, make an oral presentation part of the hiring process. Then talk to folks that know their work to establish a history of competence. Don't take someone's word at face value because (a) they may be trying to snow you, but more subtly (b) they may not know themselves.
By the way, Dr. Dunning is co-author of one of my all-time favorite articles, "Flawed self-assessment: Implications for health, education, and the workplace" which describes how the inability of people to judge themselves accurately can result in very serious problems.
Last thing: if you're not already familiar with it, check out the fundamental attribution error, which is one of the other big things our brain is constantly doing. It has huge implications for how we judge others.