Overconfidence

Stock Trading

Overconfidence has been called the most "pervasive and potentially catastrophic" of all the cognitive biases to which human beings fall victim.

Confidence implies realistically trusting in one's abilities, while overconfidence usually implies an overly optimistic assessment of one's knowledge or control over a situation.

Overconfidence refers to a biased way of looking at a situation. When you are overconfident, you misjudge your value, opinion, beliefs or abilities and you have more confidence than you should given the objective parameters of the situation. It has been blamed for stock market bubbles and crashes. Overconfident investors generally conduct more trades.

Overconfidence can cause a person to experience problems because he may not prepare properly for a situation or may get into a dangerous situation that he is not equipped to handle. 

Aiyan Thiruvalluvar explains about implications of overconfidence with an excellent example

பீலிபெய் சாகாடும் அச்சிறும் அப்பண்டஞ் 

சால மிகுத்துப் பெயின். (475)

मोर-पंख से ही सही, छकड़ा लादा जाय ।
यदि लादो वह अत्यधिक, अक्ष भग्न हो जाय ॥ (४७५)

Explanation by Scholars:

The axle tree of a bandy, loaded only with peacocks' feathers will break, if it be greatly overloaded.

மயில் இறகுதானே என்று அதீத நம்பிக்கையில்  அதை அளவுக்கு அதிகமாக வண்டியில் ஏற்றினால் வண்டியின் அச்சு முறிந்து போகும்.

பீலிபெய் = very light weight of peacock feathers

சாகாடும் அச்சிறும் = the cart's axle will break

அப்பண்டஞ் = even though very light

சால மிகுத்துப் பெயின் = if loaded more due to overconfidence