If there was one human trait that needs an adjustment, it is overconfidence. And men have it in spades. The research of Brad Barber and Terrance Odean in their aptly titled article, Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment, vividly makes this point. Barber and Odean used trading records of 37,000 households that had brokerage accounts over a seven-year period.

The result was unequivocal: men’s stock returns were, on average, worse than women’s.

The reason: men traded more often than women and consequently paid more in fees on transactions they shouldn’t have undertaken.

It would appear that men paid too much attention to their personal intuitions and not enough to a fundamental analysis of a company’s income statements and balance sheets, to the quality of top management, or to economic data and forecasts. And even if an investor employs all of the tools of fundamental and economic analysis, how can they be sure that that information about the company hasn’t already been incorporated in the price of the stock.

More generally, modern day humans have failed to understand that the economic domain in which they find themselves is unstable and badly behaved.

A market economy is a living being driven by sometimes rational sometimes impulsive humans. It is, therefore, difficult to predict where it will go next. But, you wouldn’t think so given the ease with which commentators explain the day’s or week’s events with such alacrity.

The problem: it is difficult to learn from economic events because they are constantly changing. Economic events are not like a game of chess or the drive to work or the work of an anaesthesiologist, all of which provide constant and immediate feedback.

So, while one can become skilled at chess or driving a car or putting people under, asset-picking does not provide constant or immediate feedback, which is the prerequisite for learning and the acquisition of skill.

Fighting cognitive biases such as the endowment affect is difficult. Amateur stock pickers can develop an attachment for a stock because they don’t trade on a regular basis. They will demand too high a price for a stock they own because of their attachment to it. Or, just as bad, they will buy a stock because it’s in the news or because they ‘like’ the company.

Amateurs will often sell winners and hold onto losers. They will argue that they want to lock in their gains because of narrow framing — the idea that it feels good to sell an asset that has recently appreciated and that it feels bad to sell an asset that has recently depreciated.

Add to this the fact that people are much more sensitive to losses than to gains of the same magnitude, then it makes unfortunate sense to hold onto losers and sell winners because it makes you feel good. A better strategy is to use a wide frame — maximise returns over a portfolio of assets rather than individual assets.

Both amateur and professional stock pickers are delusionally optimistic. Each stock picker believes that despite what the data say about underperformance of mutual funds — two out of three fail to beat the overall market — and investment advisers, they can beat the market.

The good news, at least from a macroeconomic perspective, is that capitalism is built on the delusion and optimism of entrepreneurs and investors willing to take risks based largely on their intuitions.

Society-at-large is well served by the actions of entrepreneurs and investors chasing profit and investment returns. Those of us who are extremely risk-averse or just plain chicken should thank entrepreneurs and investors for their service.

Craig Simmons is senior economics lecturer at Bermuda College. This article was written in association with the Bermuda Stock Exchange’s investor education campaign, entitled “Own your share of Bermuda”, which encourages people to take an interest in investing in local public companies. Learn more at goo.gl/ZQSczq