Overconfidence is the most prevalent judgment bias. Several studies find that overconfidence can lead to suboptimal decisions on the part of investors, managers, or politicians. This chapter explains which effects are usually summarized as overconfidence, shows how to measure these effects, and...

This paper attempts to introduce an overview of the field of behavioral finance, its building blocks and how it relates to the traditional mainstream finance discipline. In addition, it revisits the behavioral life cycle model that is based on the traditional life cycle model. The point of...

The behavior of financial markets and decisions of individuals are many a time driven by various biases. This can be attributed to the tendency of humans to resort to shortcuts owing to the constraints on time and mental capacity to process unlimited information. Various researchers have made an...

This paper attempts to introduce an overview of the field of behavioral finance, its building blocks and how it relates to the traditional mainstream finance discipline. In addition, it revisits the behavioral life cycle model that is based on the traditional life cycle model. The point of...

In this paper, we link Joseph de la Vega's work Confusion de Confusiones, written in 1688, with current behavioral finance and propose that Vega be considered the first precursor of modern behavioral finance. In addition to describing excessive trading, overreaction and underreaction, and the...

There is nowadays an extensive literature about irrationality of the economic human decision making. Economic Psychology and Behavioral Finances attempt to provide better models of the economic and financial human reasoning, using knowledge provided by Psychology and Behavioral Sciences....

High sentiment predicts low market returns and high arbitrage returns. This empirical evidence has important implications for portfolio optimization. Exploiting the eigenvalue-decomposition of the mean-variance portfolio, I show that its performance is the sum of two components: a market...

This paper presents a reconciliation of the three distinct ways in which the economic literature has defined overconfidence: (1) overestimation of one's actual performance, (2) overestimation of one's performance relative to others, and (3) overestimation of the quality of one's private signals....