Theoretically, there is only a 2% chance that the actual result will be out of the predicted range, but the actual chance of an unexpected result is nearly 20%, which is what psychologists refer to as overconfidence. If an investor tells you he's 99% sure, he's probably only 80% sure. This precision shows that people place unreasonably high bets on their predictions. What can we conclude from these studies? People are clearly overconfident in the accuracy of their forecasts, they exaggerate their skills, and they are overly optimistic about the future, and these biases manifest themselves in the stock market in a variety of ways.
First and foremost, many retail investors mistakenly believe that they can beat the market, and as a result, they speculate too much and trade too much. Behavioural financier Tyrese. Terrance Odean and Brad. Brad Barber, who has long observed the retail investment accounts of a large discount brokerage, found that the more frequently retail investors traded, the whatsapp list worse their performance. This illusion of financial ability likely stems from the result of another psychological study known as the "hindsight bias." This error occurs because people selectively remember only successful events. You remember successful investments, so it's easy to have hindsight and believe that "you knew Google's stock price would go up 5x after the IPO".
It is easy for the average person to attribute all good outcomes to their own abilities, and often to rationalize bad outcomes as an accident caused by unusual external events. The lessons of history do not affect us as much as a few successes. Hindsight can trigger a mindset of overconfidence that fuels our mispredictions and the misunderstanding that things are easy. Those who sell ineffective financial advice may even think they are selling good advice. "