Behavioural Traps - Overconfidence
A danger to which we are all exposed is 'overconfidence', that is, having an excessive faith in one's ability and knowledge. It is a common attitude, especially among men who on average tend to be more overconfident than women, i.e. they are too sure of themselves. Make no mistake, self-confidence is important. It is what drives us to be active and to be positive towards others. The problem, especially in finance, may emerge when one's self-confidence becomes so excessive that it leads to the underestimation of risks. To learn more, please see our video on this issue.
When we make financial decisions it is easy to fall into behavioural traps; in other words, we are vulnerable to bias. What are these traps? Errors that we commit when we make decisions that are caused by unconscious decision-making processes, or cognitive biases. Such biases affect how we think and how we interpret and use information.
The eight videos - one introductory video and seven focusing on various topics - of the series on behavioural bias describe some very common mistakes we all make: present bias, mental accounting, diversification bias, the framing effect, the overconfidence effect, representativeness bias and the endowment effect.
They were produced in partnership with Università Ca' Foscari Venice, with the involvement of its students and professors. Each video starts with a brief introduction of the key concepts, then offers practical examples and presents experiments done on students and ordinary people to demonstrate these concepts in action.