The overconfidence effect also applies to forecasts, such as stock market performance over a year or your firm’s profits over three years. We systematically overestimate our knowledge and our ability to predict—on a massive scale. The overconfidence effect does not deal with whether single estimates are correct or not. Rather, as Taleb puts it, “it measures the difference between what people actually know and how much they think they know.” What’s surprising is this: Experts suffer even more from the overconfidence effect than laypeople do. If asked to forecast oil prices in five years’ time,
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