Published Paper Details:

Overconfidence biases exert a significant influence on portfolio decisions, often leading investors to make suboptimal choices driven by inflated self-assessment. This study delves into the intricate interplay of cognitive and emotional mechanisms that underlie overconfidence biases and their effects on investment portfolios. Theoretical foundations are rooted in behavioral finance literature, including studies by Barber and Odean, De Bondt and Thaler, and Gervais and Odean. These biases manifest through mechanisms such as illusion of knowledge, self-perception, emotional attachment, and illusion of control, impacting decisions ranging from asset allocation to market timing. The consequences of overconfidence biases encompass excessive trading, suboptimal asset allocation, impulsive decisions, market timing errors, underestimation of risks, and loss aversion. To mitigate these effects, strategies such as diversification, passive investing, long-term planning, behavioral coaching, scenario analysis, and education have been proposed. Incorporating these strategies into investment practices can aid investors in countering the influence of overconfidence biases, making more informed and rational portfolio decisions that align with long-term financial goals.