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Unskilled or Unaware?


In a discussion of trading, i was asked about some of the impediments that lead to making mistakes. The question reminded me of an article i had read a while back titled "Unskilled and Unaware of It: How Difficulties in Recognizing One's Own Incompetence Lead to Inflated Self-Assessments" by Justin Kruger and David Dunning from Cornell University. It appeared in the Journal of Personality and Social Psychology 1999, Vol. 77, No. 6. pg 121-1134.

The major concept behind the article is that people tend to overinflate the views of their own abilities and skills. This is often cited in behavioral finance as an error that leads to incorrect decision making in trading decisions. The article is well written, at times humorous and quite worthwhile. One insightful quote from Darwin "ignorance more frequently begets confidence than does knowledge" reminds me of another quote often heard among traders "never mistake brains for a bull market."

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