Dr Ryan Murphy, head of the Behavioural Insights Group at Morningstar, discussed common investing biases on a Behavioural Finance Exchange podcast.
Murphy describes this as "a phenomenon where people's confidence level outruns their accuracy level". He believes that it stems from the following other biases.
This deals with the unknown. Murphy says, "Part of it (overconfidence) is fueled by this inattentional awareness, not knowing what we don't know”.
Murphy explains confirmation bias as "people's tendency to look for evidence that already supports their existing conclusions".
It occurs when people overestimate their prediction abilities and think they are smarter than they are. This kind of thinking leads to false confidence.