A good editorial in the NYT on certainty by Edward Dolnick called "Fish or Foul" concerns whether experts can be tricked through their overconfidence. Some enterprising youths tested the fish sold as sushi in NYC restaurants and found that many of the samples were not what customers were expecting, yet most believed what was on the label and could not determine the difference. The response of a renowned chef was that "It is impossible to mislead people who have knowledge".
Do we believe ourselves to be experts at anything? Our confidence can allow us to be fooled. We should know by now that it is just the opposite or as the magician Teller has stated "When you're certain you cannot be fooled, you can be easily fooled" Overconfidence is a big problem especially with smart people, so whenever I see a strong trend in the markets I have to ask the question of whether there is something wrong.
Why is the market being overconfident about the direction. In the FX space, I have to ask why are so many confident about a dollar rally. Perhaps it will be the paranoid that survive.
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