Education

The hidden cost of overconfidence

"Overconfidence is the greatest enemy of success."

Chinese proverb

illustration d'un homme en costume, sur des marches en billets d'argents

What is overconfidence bias?

Put simply, it is when you have more confidence in your skills, judgments, or decisions than is justified. 

Common forms of overconfidence include1:

  • Overestimation: thinking that you are more capable than you actually are.
  • The illusion of superiority: believing that you’re better than others.
  • Overconfidence: being overly confident that your judgments, decisons or estimations are accurate.

Research suggests that men are generally more prone to overconfidence bias than women2.
 

Examples of overconfidence bias

Nearly 90% of drivers believe they are better than the average driver, which is statistically impossible3. This overconfidence can lead to risky behaviour such as using a mobile phone while driving, underestimating road hazards, etc.

Amateur gamblers are often overly confident in their predictions: they estimate their success rate at 70%4, when in reality it is less than 60%.

The cost of overconfidence

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The cost of overconfidence

Too many transactions
 

  • Overconfident investors often overestimate the accuracy of the information they have, which leads them to trade more frequently than necessary on the financial markets.
  • Households that trade very often earn on average 7 percentage points less when compared to the least active households5.
     

Lack of diversification*

  • Overconfident investors often tend to hold a small number of stocks in their portfolios. They generally overestimate their ability to pick the "best" investments, which they believe will outperform the market.
  • The more active investors typically hold less diversified* portfolios, with about five stocks on average versus eight for those investors that trade more infrequently6.

Time for action!

Limit the impact of overconfidence in your financial decisions.
 

Being aware of this bias is the first step toward avoiding costly mistakes and making better financial decisions.
 

Illustration d’une jeune femme s’amusant dans un parc d’attractions.

Ask yourself these questions:
 

  • "Do I trade a lot because I overestimate how reliable my information or analysis is?"
    If so, take a step back and set yourself some simple rules. For example, limit the number of your investments you make each month or wait 24 hours before confirming a trade, and ask yourself if each trade is really necessary.

 

  • "Is my portfolio focused on a small number of stocks that I think are ‘the best'?"
    Diversify* your investments to reduce the risk that comes from overconfident convictions.
     

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Discover the other chapters of the series

biais comportementaux - header

Reason in action

A 6 part series on behavioural biases - those mental habits that unconsciously influence our decisions.
biais comportementaux - 2

Chapter 1 : Why maintaining the status quo could be costing you more than you think

"Nothing ventured, nothing gained." Proverb
Illustration excès de prudence

Chapter 2 : The fear factor: loss aversion in investing

"Losses weigh more heavily than gains." Daniel Kahneman, 2022 winner of the Nobel Memorial Prize in Economics
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Chapitre 4 : Biais domestique : quand privilègier ce qui est familier limite la diversificationcteur...

"On ne découvre pas de terre nouvelle sans consentir à perdre de vue tout rivage" André Gide, écrivain français, Prix Nobel de littérature
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Chapitre 5 : Jugements hâtifs : le piège caché dans vos décisions d'investissement

« Les apparences sont souvent trompeuses », dicton populaire
Stratégies pour surmonter les biais comportementaux

Chapitre 6 : Stratégies pour surmonter les biais comportementaux

Pourquoi est-il si difficile de les éviter ?

*Diversification does not guarantee a profit or protect against a loss

Illustrations : Cléo Wehrlin

1 Moore, D. A., & Healy, P. J (2008). The trouble with overconfidence. Psychological Review,

2Barber, Brad M., and Terrance Odean (2001) Boys will be boys: Gender, overconfidence, and common stock investment.

3 Svenson, Ola. (1981) Are we all less risky and more skillful than our fellow drivers?

4 Fischhoff, Baruch, Paul Slovic, and Sarah Lichtenstein (1977) Knowing with certainty: The appropriateness of extreme confidence 

5 Barber, Brad M., and Terrance Odean (2000) Trading is hazardous to your wealth: The common stock investment performance of individual investors

6 Goetzmann, William N., and Alok Kumar (2008) Equity portfolio diversification

 

 

Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of 13 February 2026. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results.
Date of first use: 13 February 2026
Doc ID: 4945943