How the World Is Changing Essay

960 Words May 4th, 2014 4 Pages
* Definition of overconfidence
In business or trading, an overestimation of one's abilities and of the precision of one's forecasts. Overconfident people set overly narrow confidence intervals in making predictions. They tend to overweigh their own forecasts relative to those of others.
The self-serving attribution bias, under which individuals attribute past successes to their own skills and past failures to bad luck, can lead to overconfidence.
In the context of financial markets, the confidence of a self-attributing investor increases when public information is in line with his or her forecast, but it does not decrease as much when public information contradicts his or her forecast. The investor therefore gains excessive confidence
…show more content…
* Self-Serving Bias
The self-serving bias is people's tendency to attribute positive events to their own character but attribute negative events to external factors. It's a common type of cognitive bias that has been extensively studied in social psychology.

* Sunk cost bias

Expenses paid for previously that are not affected by current or future decisions and costs that should be ignored when analyzing new investment activities.

* Randomness

Randomness means lack of pattern or predictability in events. Randomness suggests a non-order or non-coherence in a sequence of symbols or steps, such that there is no intelligible pattern or combination.
Applied usage in science, mathematics and statistics recognizes a lack of predictability when referring to randomness, but admits regularities in the occurrences of events whose outcomes are not certain. For example, when throwing two dice and counting the total, we can say that a sum of 7 will randomly occur twice as often as 4. This view, where randomness simply refers to situations where the certainty of the outcome is at issue, applies to concepts of chance, probability, and information entropy. In these situations, randomness implies a measure of uncertainty, and notions of haphazardness are

Related Documents