The Role of Confidence

Confidence can be a very good thing, but it can also be a very bad thing, especially as it pertains to financial markets and the average investor. In their book, "Why Smart People Make Big Money Mistakes" Gary Belsky and Thomas Gilovich argue that overconfidence is common and is deeply entrenched. The authors tell us that studies have revealed that most people consistently overrate their ability to make accurate estimates and predictions. For example, 80% of drivers contend that they are better than "average" drivers. Additionally, psychologists have found that people become overconfident when they experience success.