Chart of the Day: Overconfidence Bias

Today’s Chart of the Day from Schwab Asset Management's blog, Overconfidence bias, highlights a well-known concept in behavioral finance: overconfidence bias, or our tendency to think we’re better at things than we actually are.

In the investing world, overconfidence can be costly. Investors who believe they have above-average skill may take on unnecessary risks, try to time the market, or heavily concentrate their portfolios in speculative investments.

To show how common this bias is, today’s chart looks at two things most people have strong opinions about: their intelligence and their driving ability. If people viewed themselves objectively, the results would be closer to a 50/50 split. Instead, the majority rate themselves above average, a reminder that confidence often comes a little easier than self-awareness.