The overconfidence effect is observed when people’s subjective confidence in their own ability is greater than their objective (actual) performance. It is frequently measured by having experimental participants answer general knowledge test questions. They are then asked to rate how confident they are in their answers on a scale. Overconfidence is measured by calculating the score for a person’s average confidence rating relative to the actual proportion of questions answered correctly. Overconfidence is similar to optimism bias when confidence judgments are made relative to other people. A big range of issues have been attributed to overconfidence, including the high rates of entrepreneurs who enter a market despite the low chances of success (Moore & Healy, 2008). The planning fallacy is another example of overconfidence, where people underestimate the length of time it will take them to complete a task, often ignoring past experience (Buehler, Griffin, & Ross, 1994).
Buehler, R., Griffin, D., & Ross, M. (1994). Exploring the “planning fallacy”: Why people underestimate their task completion times. Journal of Personality and Social Psychology, 67(3), 366-381.
Moore, D. A., & Healy, P. J. (2008). The trouble with overconfidence. Psychological Review, 115(2), 502-517.