The key claim: "Random data actually mimics the effect really well."
This makes some sense. If people are asked to guess a number between 1 and 6 and then roll a die, the people who roll low are more likely to overestimate and the people who roll high are more likely to underestimate. But the key is precisely how well random data mimics the effect.
They're simulating randomness incorrectly: relationship between true and perceived will average 0.5, not 0; and bias will average 50%, not 0%. That's why their "random data" is sloped.
Add negative relationship and negative bias, and the random data will act as intended - hovering randomly around 50%.
Indeed. And the obvious reason is that when you simulate the "self-assessment" using a Gaussian noise around the "actual intelligence", and clamp it to [0, 100] so that it doesn't go "out of bound" (eg "negative intelligence" is not allowed), you will necessarily skew the low scores upward and the high scores downwards.
But it's not because "some statistical model exhibit a bias that's similar to the result" that this implies "therefore the result is a statistical error"... that's a backward reasonning
No, the argument is that the best person cannot overestimate his own rank, and the worst person cannot underestimate it. The better you are the less room there is for you to overestimate your skill, second place can at most be off by one etc.
This effect would disappear almost completely if they instead of estimating their rank they estimated their score, since then unless the test is so easy the best scores perfectly there will be a lot of room for everyone to overestimate and underestimate themselves.
But as is when the top 10% all estimate themselves to be in the top 10%, you will say they are underestimate themselves since on average the top 10% are in the top 5%. At the same time if the bottom 10% say they are in the bottom 10%, you will say they overestimate themselves since actually on average they are bottom 5%. But both these groups were making the same mistake, and its impossible for that not to happen unless everyone is perfect.