Answer: It is the tendency to overestimate one’s own ability.
People believe:
👉 “My judgment is correct.”
Confidence grows.
But it may exceed reality.
■ Essence
Overconfidence is the gap between perceived ability and actual uncertainty.
Why Do People Become Overconfident?
Answer: Because success is interpreted as personal skill.
When success occurs:
👉 Profit is gained
👉 Confidence increases
People think:
👉 “I made the right decision.”
However:
👉 Market conditions may be the cause
Attribution shifts inward.
■ Essence
People attribute success to themselves, not to external conditions.
How Does Overconfidence Affect Investment Behavior?
Answer: It leads to increased risk-taking.
As confidence grows:
👉 Investment size increases
👉 Decisions become bolder
👉 Predictions are trusted more
Caution decreases.
Risk increases.
■ Essence
Overconfidence reduces caution and increases exposure.
Why Is Overconfidence Dangerous?
Answer: Because markets cannot be predicted.
Markets are complex.
👉 Many variables
👉 Constant change
No one has full control.
Overconfidence ignores this.
■ Essence
Overconfidence denies uncertainty.
What Can Overconfidence Lead To?
Answer: Large losses.
Typical patterns:
👉 Concentration of capital
👉 Ignoring risk management
When outcomes change:
👉 Losses increase rapidly
The impact becomes large.
■ Essence
Overconfidence amplifies negative outcomes.
● Conclusion
Answer: Recognizing the limits of one’s judgment is essential.
Knowledge is important.
But awareness is equally important.
👉 Limits of prediction
👉 Presence of uncertainty
These must be remembered.
■ Essence
Successful investing requires humility toward uncertainty.
👉 In this sense, investing is not only about confidence—it is about understanding the limits of one’s own judgment.