How positive bias can lead overconfident investors to inflate the size of their wins and forget their losses
Overconfident investors, those more likely to trade more often and who had the greatest self-belief in their investment skills, were actually the individuals with the largest memory bias
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Overconfidence can be bad for markets and bad for investors. You just need to look at the recent crash in cryptocurrencies to see what can happen when investors believe they simply can’t lose. It’s certainly not a new phenomenon in the world of investing. From Tulip Mania in 17th-century Holland, to the dot-com bubble of the late 1990s, history is littered with examples of investor bravado leading them blindly into big losses when their sure-fire bet goes south.
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