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From ass + hat, from the slang expression have one's head up one's ass, thus, wearing the ass as a hat. The term is extended to people who are clueless or bumbling, who don't understand what is going on.
asshat (plural asshats)
- (Canada, US, derogatory, slang, vulgar) An obnoxiously ignorant person; a fool.
- See also Thesaurus:idiot