Overconfidence Bias in Everyday Decision-Making: A Literature Review

Abstract

Introduction

Working Capital Management (WCM) plays a crucial role in improving corporate profitability by balancing liquidity and operational efficiency. Previous studies indicate that a shorter Cash Conversion Cycle (CCC), reduced inventory holding (DIO), and faster receivables collection (DSO) generally increase profitability, while extending payment periods (DPO) offers limited benefits. Recent research also suggests that excessive working capital lowers returns, whereas overly aggressive policies increase financial risk, highlighting the need for an optimal WCM strategy.

The proposed study examines 50–100 Indian listed companies (2015–2025) using panel regression models to evaluate the impact of WCM on profitability. Results show a significant negative relationship between CCC and profitability, with a 10-day reduction in CCC improving Return on Assets (ROA) by approximately 0.8–1.5 percentage points. Larger and faster-growing firms, particularly in the FMCG sector, benefit more from efficient WCM. Overall, the findings conclude that moderately aggressive working capital management enhances profitability, although the study is limited by its reliance on accounting data and the exclusion of supply chain disruption factors.

Conclusion

Overconfidence bias remains a fundamental and pervasive influence on human decision-making, shaping outcomes across both financial and everyday contexts. As demonstrated, its effects extend beyond markets into consumption, health, career, and digital behaviour, underscoring its ubiquity. The persistence of this bias highlights the limitations of purely rational models and fortifies the need for interdisciplinary research integrating insights from finance, psychology, and behavioural science. Ultimately, overconfidence is not merely a financial anomaly but a systemic human tendency that influences real-world outcomes, making its understanding and mitigation essential for improving individual welfare, market efficiency, and policy effectiveness.

References

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Copyright © 2026 Abhinav Patil. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.