behaviour
Overconfidence
The rule
We think we know more, and are more right, than we really are. Feeling sure is not the same as being right.
Where it flips
Too little confidence is also a cost: endless doubt that never acts. Where it misleads: you freeze. The fix: give your guess as a range, size each bet to what you could be wrong about, and go looking for the fact that proves you wrong.
Most people believe they are above-average drivers, judges and investors. In the market this shows up as bets that are too big and guesses that are too exact. We also brush aside anything that argues against what we already believe. Feeling sure feels like being skilled, but the two are only loosely linked.
A worked example
An investor is "sure" a stock will double. He puts a huge slice of his savings into it and ignores the warning signs. His certainty sized the bet, not his study. [illustrative]
How to spot it
- ·guesses stated with false, exact numbers
- ·bet size driven by how sure you feel, not by real edge
- ·facts that disagree with you waved away
Daniel Kahneman · Thinking, Fast and Slow