Overconfidence Bias
Edited by Paweł Raja, PhD · Published
Definition
Overconfidence Bias is the tendency, also called the overconfidence effect, to hold more confidence in one's own knowledge, abilities or predictions than the evidence justifies — overestimating how good you are, how you compare with others, or how precise your beliefs are.
- Also known as:
- Overconfidence effect
- Category:
- Judgment & Belief
- Impact:
- High
- Landmark study:
- Moore & Healy (2008)
- Evidence here:
- 10 cited studies
Why it happens: the psychology of overconfidence bias
Moore and Healy (2008) separated three kinds of overconfidence that are often confused. Overestimation is thinking you are better than you are. Overplacement is thinking you are better than others. Overprecision is being too sure that your beliefs are correct.
Overplacement shows up in the better-than-average effect. In Svenson's (1981) survey, a large majority of US students rated themselves as safer and more skillful drivers than the median. Overprecision shows up when people give confidence intervals that are far too narrow.
Overconfidence is costly in markets. Barber and Odean (2000) found that the households that traded most actively earned substantially lower net returns, and Barber and Odean (2001) found that men, who tend to be more overconfident about investing, traded more than women and earned less as a result.
It also shapes corporate decisions. Malmendier and Tate (2005) found that CEOs who held on to in-the-money company stock options — a sign of overconfidence about their firm's prospects — made investment decisions more sensitive to cash flow.
Overconfidence Bias examples
In a study of tens of thousands of US brokerage accounts, the households that traded most earned markedly lower net returns than the market, because frequent trading generated costs without better stock-picking (Barber & Odean, 2000).
- Everyday life: most drivers rate themselves as safer and more skillful than the average driver — which cannot be true for most of them (Svenson, 1981).
- Education: students writing an honors thesis predicted they would finish in about 34 days on average; they took about 56, and only about 30% finished by their own predicted date (Buehler, Griffin & Ross, 1994).
- Work: projects routinely run over time and budget because planners underestimate how long tasks will take — the planning fallacy.
- Knowledge: people asked general-knowledge questions were often wrong on answers they said they were certain of (Fischhoff, Slovic & Lichtenstein, 1977), and 90% confidence ranges typically capture the true answer far less than 90% of the time.
- Business: in experiments, more people entered a competitive market when payoffs depended on their own skill relative to others than when they depended on chance, so too many entered (Camerer & Lovallo, 1999).
- Business: CEOs who held on to in-the-money stock options in their own firm — a sign of overconfidence — made investment decisions more dependent on internal cash flow (Malmendier & Tate, 2005).
- Health: after reading a few articles online, someone feels certain of a self-diagnosis and dismisses the doctor's alternative explanation.
Overconfidence effect vs. overconfidence bias
'Overconfidence effect' and 'overconfidence bias' name the same phenomenon. Calibration researchers tend to speak of the overconfidence effect: when people say they are 90% or even 100% sure, they are right less often than that. Behavioral economists and finance researchers more often say overconfidence bias, stressing its costs in trading, entrepreneurship and corporate investment.
Both terms cover the three forms Moore and Healy (2008) distinguish: overestimation of one's own ability or performance, overplacement of oneself relative to others, and overprecision, or excessive certainty that one's beliefs are correct. The forms do not always move together; on very hard tasks, for example, people tend to overestimate their own score yet place themselves below others.
The planning fallacy is a common everyday form of the overconfidence effect. Buehler, Griffin and Ross (1994) found that people predicting their own completion times focus on their plans for the task in hand and neglect how long similar tasks took in the past.
How to avoid overconfidence bias
- Track your record. Write down predictions with confidence levels and check them later; calibration improves with feedback.
- Widen your ranges. If you are '90% sure', ask what would have to be true for the answer to fall outside your range — and widen it.
- Use the outside view. Compare your plan with how similar projects actually turned out (reference-class forecasting) rather than with your own scenario.
- Run a pre-mortem: imagine the decision has failed a year from now and list the likeliest reasons.
How to design for it (nudge strategy)
Ask for ranges instead of point estimates, show people their historical forecast accuracy, and run 'pre-mortems' that imagine a plan has failed and ask why.
Ethical use: design for choices people would endorse on reflection — a nudge, not sludge. Be transparent and keep opting out easy.
Key studies
Distinguished overestimation, overplacement and overprecision, and explained when each appears.
Moore, D. A., & Healy, P. J. (2008). The trouble with overconfidence. Psychological Review, 115(2), 502–517. DOI →
Most drivers rated themselves as safer and more skilled than the median driver.
Svenson, O. (1981). Are we all less risky and more skillful than our fellow drivers? Acta Psychologica, 47(2), 143–148. DOI →
Households that traded most earned much lower net returns than the market.
Barber, B. M., & Odean, T. (2000). Trading is hazardous to your wealth: The common stock investment performance of individual investors. Journal of Finance, 55(2), 773–806. DOI →
Men traded more than women and reduced their net returns by more.
Barber, B. M., & Odean, T. (2001). Boys will be boys: Gender, overconfidence, and common stock investment. Quarterly Journal of Economics, 116(1), 261–292. DOI →
Overconfident CEOs' investment was more sensitive to internal cash flow.
Malmendier, U., & Tate, G. (2005). CEO overconfidence and corporate investment. Journal of Finance, 60(6), 2661–2700. DOI →
Answers that people held with extreme confidence, even 'certainty', were wrong far more often than that confidence implied.
Fischhoff, B., Slovic, P., & Lichtenstein, S. (1977). Knowing with certainty: The appropriateness of extreme confidence. Journal of Experimental Psychology: Human Perception and Performance, 3(4), 552–564. DOI →
Students' predictions of when they would finish their theses and other tasks were consistently too optimistic; people focused on plans for the task at hand and gave little weight to how long similar tasks had taken before.
Buehler, R., Griffin, D., & Ross, M. (1994). Exploring the "planning fallacy": Why people underestimate their task completion times. Journal of Personality and Social Psychology, 67(3), 366–381. DOI →
Participants entered a competitive market more often when payoffs depended on their relative skill rather than on chance, producing excess entry.
Camerer, C., & Lovallo, D. (1999). Overconfidence and excess entry: An experimental approach. American Economic Review, 89(1), 306–318. DOI →
Key research
- Managing Self-Confidence: Theory and Experimental EvidenceMarkus M. Möbius, Muriel Niederle, Paul Niehaus, Tanya S. Rosenblat · Management Science (2022)
- Errors in Probabilistic Reasoning and Judgment BiasesDaniel J. Benjamin · Handbook of Behavioral Economics: Applications and Foundations 1 (2019)
Related biases
Overconfidence Bias: frequently asked questions
What is overconfidence bias?
Overconfidence bias is being more sure of your knowledge, skills or forecasts than is justified. It includes overestimating your ability, ranking yourself above others, and being too certain of your beliefs.
What is the overconfidence effect?
The overconfidence effect is the finding that people's confidence in their judgments exceeds their accuracy: answers people are '90% sure' of are right less than 90% of the time. It is another name for overconfidence bias.
What are the three types of overconfidence?
Overestimation (thinking you are better than you are), overplacement (thinking you are better than others) and overprecision (excessive certainty about the accuracy of your beliefs).
What are some examples of the overconfidence effect?
Most drivers believing they are above average; investors trading frequently because they think they can beat the market; students and project teams predicting they will finish far sooner than they do; entrepreneurs overrating their own chances of beating the competition.
Is overconfidence always bad?
Not always. Mild optimism can help motivation and persistence. It becomes costly when it drives excessive risk-taking, under-preparation or ignoring advice.
Cite this page
Raja, P. (Ed.). (2026, 8 Oct 2026). Overconfidence Bias. Behavioral Economics Lab. https://www.behavioraleconomicslab.com/biases/overconfidence-bias