And the housing market, seasonally adjusted, has been rising. The S.& P./Case-Shiller 20-city home price index gained 7 percent in 2012.
These vital signs make many people believe that we’ve turned the corner on the economy, that we’ve started a healing process. And their discussions often note one particular sign of systemic recovery: confidence. There is considerable hope that the markets are heralding a major development: that Americans have lost the fears and foreboding that have made the financial crisis of 2008 so enduring
in its effects.
Hope is a wonderful thing. But we also need to remember that changes in the stock market, the housing market and the overall economy have relatively little to do with one another over years or decades. (We economists would say that they are only slightly correlated.) Furthermore, all three are subject to sharp turns. The economy is a complicated system, with many moving parts.

So, amid all those complications, there are other possibilities: Could we be approaching another major stock market peak? Will the housing market’s takeoff be short-lived? And could we dip into another recession?
There are certainly risks. Congress is mired in struggles over the budget crisis and the national debt.

The government is questioning the risk to taxpayers in its huge support of housing through Fannie Mae, Freddie Mac, the Federal Housing Administration and the Federal Reserve. Problems in Europe, Asia and the Middle East could easily shift people’s confidence. There have been abrupt and significant changes in confidence in European markets since 2009. Is there any reason to think that the United States is immune to similar swings? . . . 
Clearly, confidence can change awfully fast, and people can suddenly start worrying about a stock market crash, just as they did after 2007."
Now let's examine both overconfidence and underconfidence more broadly and learn why I believe underconfidence may be worse for our economic health than what we commonly call cockiness, which is not a good thing either. Maybe Goldilocks had it right all along. But what's "just right?"