Unit 2 · Level 1 · Cognitive biases
Overconfidence: above average, all of us
In one famous study, 93% of American drivers rated themselves above the median, a statistical impossibility. Investors do the same. Brad Barber and Terrance Odean analysed tens of thousands of broker accounts: the most active traders (usually the most confident) earned the worst returns, lagging the market by several percentage points a year. Confidence and skill are different data series.
Free to play. No ads, no token, no account needed to start.
What you get asked
Barber & Odean's study of thousands of real broker accounts found the most active traders…
The paper was literally titled 'Trading Is Hazardous to Your Wealth'. More confidence → more trading → more fees and mistakes → less money.
Overconfidence peaks right after a winning ___.
Three wins in a row FEEL like proof of skill and are statistically routine luck. The Trading course's overconfidence demon whispers exactly here: 'size up'.
Order the honest-stats routine
Most people who run step 3 for the first time get an unpleasant surprise. That surprise is the bias being measured.
The honest-stats framing of 'I'm up 3 trades in a row, time to size up' is:
A coin flipped 3 heads in a row 12.5% of the time. Sample sizes that small say nothing, but they FEEL like destiny, and that feeling has a price.
Why does a written journal beat memory for judging your own skill?
Hindsight quietly rewrites 'I gambled' into 'I knew it'. Ink doesn't. Honest stats are the only known cure for the above-average illusion. 🐜
The rest of this unit
Loss aversion, echo chambers, anchors, hubris: the bugs in everyone's mental firmware.