Recent research has proposed several ways in which overconfident traders can persist in competition with rational traders. This paper offers an additional reason: overconfident traders do better than purely rational traders at exploiting mispricing caused by liquidity or noise traders. We...

The literature views aggressive trading behavior as the key for representativeness heuristic traders to survive in competition with rational traders. This paper provides another reason. That is, in this dynamic model of a competitive securities market, representativeness heuristic traders can...