Overconfidence is an excessive belief in one’s capabilities or firm future performance. It’s commonly pinpointed as a reason behind the Lehman Brothers collapse. I regularly assess overconfidence in executive assessment, but it doesn’t neatly fit under our common categories of traits/preferences, drivers/motives, competencies/skills and achievements/experiences. Psychologists think of it as a cognitive bias. We use interviews, questionnaires, and even reference checking that explores decision making styles. These all have the advantage that they assess the concept directly and can be standardized.
Economists have their own measures. These are often behavioural. They are also context dependent and can be harder to standardise. One of the most widely used is longholder bias, proposed by Malmendier & Tate (2005). Longholders are executives who delay exercising their share options, even when it makes economic sense to. They might personally invest in the business beyond minimal required holdings, or prefer debt over equity. These indicators can also be an indication of commitment, but like many things at the extreme become counterproductive.
Source: https://onlinelibrary.wiley.com/doi/full/10.1111/j.1540-6261.2005.00813.x
