Overconfidence and Self-Serving Bias
Overconfidence is manifested by the overestimation or exaggeration of one’s ability to perform a particular task successfully. It may take one of three forms: (i) overestimation of one’s actual performance, (ii) overplacement of one’s performance relative to others and (iii) excessive confidence in own beliefs. People are prone to self-serving bias (also referred to as self-serving attribution bias) when they attribute positive events to their own character (internal attribution) and negative events to external factors (external attribution). Self-serving bias is common and observable in our day-to-day environment, it can be detected easily, and it feeds on financial crises as it provides a fertile ground for factors to which people can attribute their failure. Overconfidence is linked to self-serving bias.
KeywordsOverconfidence Self-Serving bias External Attribution Noise Trading
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