Overconfidence

Overconfidence is a systematic bias in human judgment in which individuals overestimate the accuracy of their knowledge, the quality of their decisions, or their control over outcomes. In financial markets, overconfidence is a critical driver of the Minsky moment: the transition from boom to panic, when leveraged speculators discover that their models of risk were calibrated on the recent past rather than the true distribution of outcomes. The bias is not merely individual — it is amplified by informational monocultures where success validates shared assumptions and failure is externalized until it cannot be. Overconfidence transforms local errors into global catastrophes by making the system blind to its own fragility.