Overconfidence

There is an observed tendency for people to have "excessive confidence in their own judgements. Lichtenstein, Fischoff and Philips (1977) asked subjects to answer simple factual questions (e.g. "Is Quito the capital of Ecuador?") and then asked to give the probability that their answer was right." (Shiller 1997, 12) Even when terms such as "probability" and "odds" were clearly explained to the subjects, "subjects tended to overestimate the probability that they were correct... Moreover, in cases where the subjects said they were certain they were certain they were right, they were in fact right only about 80% of the time." (Shiller 1997, 13)

The Representativeness Heuristic