Question

Overconfidence does not quickly dissipate via learning because of the existence of contributing biases. Discuss this statement in the context of those who are managing their own money.

Answer 1

Overconfidence is related to emotional bias. Overconfidence investors think that they have more control on their money and investments. Overconfidence investors doesn't do much intensive study and analysis before investment due to overestimation of their capabilities in predicting the future. An overconfident investor can become a part of major frauds. Thus, because of the existence of contributing biases, overconfidence doesnot quickly dissapear via learning. It is a slow process and overconfident investor need to work on his attribute and control their overlooking behaviour to dissipate the overconfidence. He must learn from the mistakes done. Managing the money needs intensive study and analysis plus experience which must not be overlooked.