What are the consequences of thinking you're hot when you're not vs thinking you're not when you're hot?

There are differences in perception of yourself when you compare your own perception to others’ perception. Those differences can go two ways. You might think you’re good looking when others do not share that perception. You might think you’re ugly when others think you are good looking. This works for any attribute—brains, success, capability, skills, whatever.

But what is the difference in a person’s life? Is it better to think well of yourself when you don’t deserve it, or to think poorly of yourself when you should think well? What do these self-perceptions do? What are the consequences in a person’s life?