Key Cognitive Biases That Sabotage Investment Decisions
1. Overconfidence Bias
Overconfidence bias is when investors overestimate their knowledge, skills, or ability to predict market movements.
Effects:
• Excessive trading, which leads to higher transaction costs.
• Misjudging risks and overexposing portfolios to certain assets.
Example
An investor believes they can consistently time the market based on personal research or intuition, ignoring the inherent unpredictability of financial markets.
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