Überschätzung

Überschätzung is a German word that translates to overestimation or overrating. It refers to the act of assigning a value, importance, or capability to something or someone that is higher than what is objectively warranted. This can manifest in various contexts, from personal judgment to economic forecasting.

In psychological terms, Überschätzung can be linked to cognitive biases. For instance, the Dunning-Kruger effect describes how individuals with low competence in a particular area tend to overestimate their ability. Conversely, highly competent individuals may underestimate their relative competence, though this is less commonly the focus of the term Überschätzung. It can also relate to confidence bias, where a person's belief in the accuracy of their judgments is higher than the objective accuracy of those judgments.

In finance and economics, Überschätzung is a common concern. Assets or investments may be overvalued, leading to market bubbles. Similarly, economic forecasts can be overly optimistic, resulting in misallocated resources or unrealistic policy decisions. The opposite of Überschätzung is Unterschätzung, or underestimation. Recognizing and mitigating Überschätzung is crucial for sound decision-making in both personal and professional spheres. It often involves seeking objective data, considering alternative perspectives, and employing critical evaluation techniques.