Cognitive Scaffold

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MENTAL MODEL · M4720

Overconfidence

Overconfidence
Learn & MetacognitionHigh supportCognitive Psychology
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Version 1.0.0 · Updated 2026-07-30

CORE DEFINITION

People tend to overestimate the accuracy of their knowledge, abilities, or judgments, a bias that is prevalent in financial, business, and personal decisions.

SCAFFOLDING EFFECT

psychology

Reduce cognitive load

Understanding the psychological roots of decision errors. Overconfidence explains why investors overtrade, why entrepreneurs overestimate the probability of success, and why projects often exceed budgets and deadlines. Recognizing and managing overconfidence is key to risk management and decision quality.

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People systematically overestimate the accuracy of their knowledge/abilities, especially on difficult tasks or those with information asymmetry, leading to overtrading and underestimation of risk.

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Source support: Explicit

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    en.wikipedia.orghttps://en.wikipedia.org/wiki/Overconfidence_effectZH · Explicit
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