Overconfidence Effect
Why You systematically overestimate your knowledge and abilities?
We systematically overestimate our knowledge and our ability to predict - on a massive scale. The overconfidence effect does not deal with whether single estimates are correct or not. Rather it measures the difference between what people really know and what they think they know.
Experts suffer even more overconfidence than laypeople do.
Overconfidence does not stop at economics.
In fact, enterpreneurial activity would be a lot lower if overconfidence did not exist.
What makes overconfidence so prevalent and its effect so confounding is that it is not driven by incentives; it is raw and innate.
And it’s not counter balanced by the opposite effect, underconfidence which does not exist.
Overconfidence is more pronounced in men. Women tend not to overestimate their knowledge and abilities as much.
Optimists are not the only victims of overconfidence. Even self-proclaimed pessimists overrate themselves - just less extremely.
Be aware that you tend to overestimate your knowledge Be sceptical of predictions, especially if they come from so-called experts. And with all plans, favor the pessimistic scenario. This way you have chance of judging the situation somewhat realistically.