The Psychology of Bad Investing: 7 Cognitive Biases That Cost You Money

2. Overconfidence Bias: The Illusion of Control

Overconfidence bias refers to an investor's unwarranted faith in their own intuitive reasoning, judgments, and cognitive abilities. This bias often leads investors to overestimate their knowledge and underestimate risks, resulting in excessive trading and portfolio turnover. Overconfident investors might believe they can time the market perfectly or predict future stock movements with certainty, ignoring the inherent unpredictability of financial markets. To mitigate overconfidence, investors should rely on data-driven decision-making processes and consider the advice of financial professionals. Recognizing the limits of one's own expertise is a critical step in fostering more balanced investment strategies.