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Don’t Make Me Say I Told You So 139
bond index funds. That $30,000 per year translates to $2,500
less monthly income for this retiree.
Overconfidence
Compared with all other drivers, do you consider yourself
above average, average, or below average? In a study by The
AAA Foundation, 80% of drivers thought they were better than
1
average. Obviously, 50% of the people surveyed would be
“above average drivers,” and 50% would be “below average.”
The results of this poll are not surprising. People tend to be
overconfident, and overconfidence is not limited to driving.
In fact, behavioral finance research tells us that
overconfidence causes us to overestimate our knowledge,
underestimate risks, and exaggerate our ability to control
events. According to one study, 81% of new business owners
believe that their business has at least a 70% chance of
succeeding. This is probably good. You have to be confident,
2
or you would not start a business in the first place, right? What
is interesting is that only 39% believed that any other business
like theirs could succeed. 3
It’s precisely this type of overconfidence that surfaces when
people make investment decisions. People are overconfident
Chapter 4: The Most Common Investor Mistakes
