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What is Overconfidence Bias

Handbook of Research on Behavioral Finance and Investment Strategies: Decision Making in the Financial Industry
A tendency to overestimate ones capabilities with regard to investment decision making
Published in Chapter:
Investor Biases in Financial Decisions
Shalini Kalra Sahi (Management Development Institute, India)
DOI: 10.4018/978-1-4666-7484-4.ch009
Financial Decisions involve making choices between various investment alternatives, with the aim of increasing the individual's net worth. The investor today is exposed to various investment options, but does not have the knowledge and capability of evaluating all the options and making a rational decision. Due to the limitation in the information processing capacities of the individuals, their beliefs and preferences, the investment decision-making process, gets biased. This chapter highlights ten such biases and throws light on how they impact investment behaviour, both positively and negatively. This understanding of investor psychology will generate insights that will benefit the financial advisory relationship. Further for Individuals, recognizing how the biases impact their financial decisions, can help create self-awareness and an understanding that would help them in better financial management, in case these tendencies are leading them to make unsatisfactory investments.
Full Text Chapter Download: US $37.50 Add to Cart
More Results
Leadership and Strategic Decision Making Under Exogenous Shocks Such as COVID-19
Is a tendency to hold a false and misleading assessment of our skills, intellect, or talent.
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Overconfidence and Optimism Biases in Insurance Purchasing Decisions and Overcoming Them Through Nudge
Overconfidence in oneself denotes the inclination of an individual to exaggerate their abilities, expectations of success, positive outcomes of events, or the accuracy of their knowledge. This tendency arises from individuals being unaware of the limits of their cognitive capacities ( Conger & Wolstein, 2004 )
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