But that's hard to do, considering our minds are natural born lawyers. There is a fine line between confidence and believing BS, one that I can't always find.

Well, going to the gym or learning a new programming language are also hard. Most things that matter in the long run are.

Being honest with yourself is not the same S confidence building. BSing yourself is saying 'my new app will sell a million units'. Being honest with yourself is saying 'if I do x and y, then I can see a market size for my app of a million units. There is risk that this won't happen becaue of z, but I am going to proceed'. If it then fails, the person prone to lying to themsleves will blame everything and anyone else. The person who is honest with themselves will look at the hard lessons and take them on board, and benefit from the experience.

To me, there is no line at all.

Great one, thanks!

Thinking / talking to oneself is a huge puzzle-space in general because of the self-modifying aspect of it, and not lying to oneself sounds like a great foundational value to keep the entire OS sane.

Your premise is itself a delusion of knowing the truth from a lie.

Not the way I see it. A lie is an intentional untruth. An honest person knows when they tell a lie, whether to themselves or to someone else. To start lying to others, first you have to lie to yourself.

A habitual liar eventually ends up in a whirl of relative truths, justifications and evasions. An effective person must never end up in such a place.

Telling yourself things that are ultimately wrong is OK, as you will eventually learn the truth. It's at the point where you learn the truth that determines whether you will continue to delude yourself or face up to it.