Overconfidence
No problem in judgment and decision making is more prevalent and more potentially catastrophic than overconfidence
Plous (1993)
Overconfidence is related to overoptimism. The overconfidence effect is a well-established bias in which someone's subjective confidence in their judgments is reliably greater than their objective accuracy, especially when confidence is relatively high. For example, in some quizzes, people rate their answers as "99% certain" but are wrong 40% of the time.
Overconfidence can cause investors to underreact to new information.
"People are overconfident. Psychologists have determined that overconfidence causes people to overestimate their knowledge, underestimate risks, and exaggerate their ability to control events. Does overconfidence occur in investment decision making? Security selection is a difficult task. It is precisely this type of task at which people exhibit the greatest overconfidence."
Nofsinger (2001)
