“The correlation coefficient between return estimates and realized returns is not distinguishable from zero. Furthermore, people overrate themselves. On average, investors think, that they are better than others. The correlation between self ratings and actual performance is also not distinguishable from zero.” Actually the overconfidence result was quite mild in their data: 53% thought they did better than average.

In terms of practical consequences, Robin’s earlier post proposed keeping track of how various pundits and forecasters have performed, to allow judging the quality of subsequent analyses and predictions. I interpreted that idea as being something of a collective effort, but perhaps it would be possible to apply this concept immediately, in today’s environment of bloggers and online columnists with histories going back several years.

One source I have found is that some bloggers make predictions every year, and then grade themselves at the end of the year. They tend to grade rather easily but an external observer could decide for himself. Google on “predictions for 2007″ and such and you get quite a few hits.