The Dunning–Kruger effect is a cognitive bias in which inexperienced people overestimate their competence, while highly capable people may underestimate theirs. In investing, hidden overconfidence can turn limited knowledge into bold decisions and costly mistakes. section 4.1.1
Reduce overconfidence by treating investment judgment as a process that requires evidence, feedback, and controlled exposure.
- Choose domains where you have demonstrated knowledge or relevant work experience. section 4.1.1
- Iteratively challenge and refine an investment idea before calling it a thesis. section 4.1.1
- Build experience through low-stakes investing, seek qualified advice for significant decisions, and critically review social-media recommendations. section 13.1
