Behavioural Biases in Investment Decision Making: A Research Study on Individual's Overconfidence

Abstract

Individuals sometimes act with excessive self-reliance resulting self-confidence gets converted to overconfidence. The overconfidence is a well-established bias in which a person's subjective confidence in her/his judgments rules over the objective accuracy of those judgments. As a result of that, the outcome gets influenced. It is observed that overconfidence may generate in three ways, e.g. overestimation, overplacement and overprecision. Investment decision making also gets affected by the influence of individual's overconfidence and it comes in the above three ways. This primary research study had been initiated to examine if individuals are really getting affected by the overconfidence bias or not. It is strongly evidenced that individuals exhibit overconfidence while executing investment decision making. Sometimes they consider their price as optimum, sometimes they consider the timing is perfect. They also consider themselves skilled and knowledgeable to identify the “good” stocks. They do not pay any importance on the contradictory opinion because they are overconfident that they can predict the future stock price perfectly. Their overconfidence influence adversely the decision making process leading to a serious error in judgement in many occasions.