AP PSYCHOLOGY

Detailed explanation-1: -Overconfidence bias is a tendency to hold a false and misleading assessment of our skills, intellect, or talent. In short, it’s an egotistical belief that we’re better than we actually are. It can be a dangerous bias and is very prolific in behavioral finance and capital markets.

Detailed explanation-2: -The heuristic of overconfidence is an internal process that relates to how we assess the accuracy of our stored knowledge and our perceptual models. Studies have repeatedly shown that humans have more confidence in the accuracy of their knowledge and actions than is justified.

Detailed explanation-3: -The overconfidence bias is the tendency people have to be more confident in their own abilities, such as driving, teaching, or spelling, than is objectively reasonable.

Detailed explanation-4: -A person who thinks their sense of direction is much better than it actually is could show overconfidence by going on a long trip without a map and refusing to ask for directions if they get lost along the way. An individual who thinks they are much smarter than they actually are is a person who is overconfident.

Detailed explanation-5: -The overconfidence effect is observed when people’s subjective confidence in their own ability is greater than their objective (actual) performance (Pallier et al., 2002). It is frequently measured by having experimental participants answer general knowledge test questions.