Which behavioral bias is characterized by an individual’s excessive confidence in their own abilities?

The bias characterized by an individual’s excessive confidence in their own abilities is known as overconfidence. This behavioral bias manifests when individuals overestimate their own skills, knowledge, or accuracy in their assessments and predictions. It often leads to taking on risks greater than those warranted by an individual's actual competence or knowledge.

Individuals exhibiting overconfidence tend to believe that they have superior insight or foresight compared to others, which can result in decisions that are more aggressive or uncalculated. This bias can significantly impact investment decisions, as overconfident investors may ignore warning signs or undervalue the importance of diversification, believing too strongly in their ability to predict market movements.

While self-attribution bias, regret aversion, and illusion of knowledge are related to cognitive biases and can influence decision-making, they do not specifically focus on the excessive belief in one's capabilities as overconfidence does. Self-attribution bias pertains to the tendency to take credit for successes and attribute failures to outside factors. Regret aversion is related to avoiding decisions that could lead to regret. The illusion of knowledge involves the false belief that one knows more than they actually do. Overconfidence encompasses all these ideas but is specifically about one's inflated belief in their own abilities.