Self confidence vs. complacency

I was recently listening to an NPR Planet Money podcast talking about performance pay and why it doesn't happen more in our economy. One of the reasons they gave was that in general, people have a better perception of their performance than is actual reality. The guest cited a study (sorry I'm too lazy to look it up, but it is podcast #68 "How we get paid" 94% of college professors think they are a better professor than their average colleague, and over 90% of drivers think they are better than average drivers. And when drivers who are in the hospital for accidents they caused are asked how they compare to other drivers, 85% say that they are better than average drivers. And another study that I saw on The Daily Dish talked about how confidence isn't necesarily tied to achievement.

So, my question to the readers is: How do I teach my kids (and myself) to believe in themselves without them getting over confident or thinking they're better than everyone else? It seems like a delicate balance to strike.