Scholes asked an eminently sensible question. Here is an analogy: How good a driver are you? Relative to the drivers you encounter on the road, are you above average, average, or below average?
Between 65 and 80% of people who answer the driver question rate themselves above average. Of course, we all want to be above average, but only half of us are! So, most people are "overconfident" about their driving abilities. I suspect that investors are about as overconfident of their trading abilities as they are about their driving abilities.
There are two main implications of investor overconfidence. The first is that investors take bad bets because they fail to realize that they are at an informational disadvantage. The second is that they trade more frequently than is prudent, which leads to excessive trading volume.
BEYOND GREED AND FEAR; Hersh Shefrin.
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