Overconfidence(Decision Making)

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One of the decision making biases that managers may exhibit is overconfidence which is holding unrealistically positive views of one’s self and one’s performance. Overconfidence manifests itself either as excessive optimism about future firm performance or as an underestimate of the variance underlying future performance. Overconfidence tends to be a negative personality of an individual who has the tendency to overestimate the possibilities of his success. Overconfidence manager makes probability judgments that are more extreme than they should, givens the evidence and their knowledge. He or she never analyze and interpret their decision in a more complete way and lead to the biases happening. Overconfidence manager may overestimate the likelihood of his company to succeed. A manager tends to believe he will make better decision; he is making a ‘more informed decision’. He feels like his decision is the best among others, even if more information is available. Overconfidence manager usually don’t analyze all of it (even though he believe he does), he tend to make decision based on his own preference and never take consideration from others suggestion. Overconfidence manager may not fully consider all relevant information, nor search for additional information to improve his decision. Moreover, the natural tendency for people to recall past successes rather than failures may mean that overconfidence manager will make the same mistake again. For example, a finance manager may overconfidence to invest in foreign currency account due to attractive rates and high yielding investment hence he intends to invest RM100,000 into foreign currency account. However, his executive has study an economic forecast that Malaysia Ringgit will be depreciate. Due to his overconfidence personality and he doesn’t consider others opinion and advice which in fact government has decided to change new notes on 2012 and Malaysia Ringgit has depreciated. Besides that, Euro countries are...
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