- Occurs when individuals overestimate their ability to predict future events. Many people exhibit signs of overconfidence. For example, 82% of the drivers surveyed feel they are in the top 30% of safe drivers, 86% of students at the Harvard Business School say they are better looking than their peers, and doctors consistently overestimate their ability to detect problems.
- Jérôme Kerviel, a junior trader in the bank, had extensive knowledge of the bank’s control mechanisms and used this knowledge to beat the system.
Interestingly, he did not make any money from these transactions himself, and his sole motive was to be successful. He secretly started making risky moves while hiding the evidence. He made a lot of profit for the company early on and became overly confident in his abilities to make even more. In his defense, he was merely able to say that he got “carried away.”
To avoid this bias, take the time to stop and ask yourself if you are being realistic in your judgments.