Overconfidence Bias

Early research and calibration

Oskamp (1965) reported that judges given more clinical case material grew more confident while their accuracy stayed the same. Researchers then measured overconfidence through calibration, checking whether people who say they are 90 percent sure are in fact right 90 percent of the time. Lichtenstein, Fischhoff and Phillips (1982) reviewed many studies showing that on general-knowledge questions, confidence systematically exceeds accuracy, and Alpert and Raiffa (1982) showed that when people are asked for 98 percent confidence intervals, the true value often falls outside them more than 40 percent of the time.

Three kinds of overconfidence

Moore and Healy (2008) pointed out that distinct phenomena were being lumped together as overconfidence and separated three forms. Overestimation is thinking one's actual ability or performance is higher than it is; overplacement is believing one is better than others; and overprecision is excessive certainty in the accuracy of one's beliefs, treating uncertainty as too narrow. Svenson's (1981) finding that most American students rated their driving skill above average is a classic case of overplacement. Yet overplacement appears on easy tasks, while on hard tasks people tend to place themselves below average, a pattern Moore and Healy explained by imperfect information. Kruger and Dunning (1999) reported that the least skilled overestimate their performance the most, though critics argue that much of this effect can be explained by statistical regression.

Evidence in economics and management, and critiques

Odean (1998) modeled how investors who overrate the precision of their information trade too much, and Barber and Odean (2001) found in brokerage account data that the most active traders earn the lowest net returns and that men trade more than women. In experiments, Camerer and Lovallo (1999) found that people overrate their own skill and enter markets excessively even when entry is unprofitable. Malmendier and Tate (2005) showed that CEO overconfidence, measured by option-exercise behavior, raises the sensitivity of investment to cash flow, and Ben-David, Graham and Harvey (2013) found that chief financial officers' forecast intervals for market returns are far too narrow. Gigerenzer, Hoffrage and Kleinbölting (1991), by contrast, argued that overconfidence largely disappears when questions are sampled randomly, so the bias may partly be an artifact of how experimental items are selected. The topic is central to research on judgment biases alongside the anchoring effect, the planning fallacy and hindsight bias.

FAQ

What is overconfidence bias in simple terms?

It is the tendency to believe your skills or judgments are better or more accurate than they really are.

What types of overconfidence are there?

Moore and Healy (2008) distinguish overestimation of one's own performance, overplacement relative to others, and overprecision, or excessive certainty in one's judgments.

Sources reviewed: 2026-10-26

References

1. Oskamp, S. (1965). Overconfidence in case-study judgments. Journal of Consulting Psychology, 29(3), 261–265.
2. Lichtenstein, S., Fischhoff, B., & Phillips, L. D. (1982). Calibration of probabilities: The state of the art to 1980. In D. Kahneman, P. Slovic & A. Tversky (Eds.), Judgment Under Uncertainty: Heuristics and Biases (pp. 306–334). Cambridge: Cambridge University Press.
3. Alpert, M., & Raiffa, H. (1982). A progress report on the training of probability assessors. In D. Kahneman, P. Slovic & A. Tversky (Eds.), Judgment Under Uncertainty (pp. 294–305). Cambridge: Cambridge University Press.
4. Svenson, O. (1981). Are we all less risky and more skillful than our fellow drivers? Acta Psychologica, 47(2), 143–148.
5. Gigerenzer, G., Hoffrage, U., & Kleinbölting, H. (1991). Probabilistic mental models: A Brunswikian theory of confidence. Psychological Review, 98(4), 506–528.
6. Kruger, J., & Dunning, D. (1999). Unskilled and unaware of it. Journal of Personality and Social Psychology, 77(6), 1121–1134.
7. Odean, T. (1998). Volume, volatility, price, and profit when all traders are above average. Journal of Finance, 53(6), 1887–1934.
8. Barber, B. M., & Odean, T. (2001). Boys will be boys: Gender, overconfidence, and common stock investment. Quarterly Journal of Economics, 116(1), 261–292.
9. Camerer, C., & Lovallo, D. (1999). Overconfidence and excess entry: An experimental approach. American Economic Review, 89(1), 306–318.
10. Malmendier, U., & Tate, G. (2005). CEO overconfidence and corporate investment. Journal of Finance, 60(6), 2661–2700.
11. Moore, D. A., & Healy, P. J. (2008). The trouble with overconfidence. Psychological Review, 115(2), 502–517.
12. Ben-David, I., Graham, J. R., & Harvey, C. R. (2013). Managerial miscalibration. Quarterly Journal of Economics, 128(4), 1547–1584.
13. Moore, D. A. (2020). Perfectly Confident: How to Calibrate Your Decisions Wisely. New York: Harper Business.