Overconfidence can lead to financial mistakes from "summary" of Your Money and Your Brain by Jason Zweig
Overconfidence can lead to financial mistakes because it causes investors to take on too much risk. When we are overconfident, we tend to believe that our abilities are better than they actually are. This can lead us to make decisions based on faulty assumptions and faulty information. For example, if we believe that we are experts at picking stocks, we may trade more frequently than is prudent, racking up transaction costs and taxes that eat away at our returns. Overconfidence can also cause us to ignore warning signs that we are taking on too much risk. When we are overconfident, we may convince o...
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